We have seen that nowadays a lot of time is spent talking about how options trading has made its mark in the domestic markets. The popularity of options trading is such that a lion share of contribution to the total daily turnover of the NSE is contributed by the options segment and the participation in this segment by retail traders has been on the rise at a rapid rate. Options are vastly misunderstood and typically used improperly by inexperienced traders. Oftentimes, new options traders attempt to make inherently greedy decisions by choosing ‘pie in the sky’ strategies rather than a methodical, steadfast approach. They want the chance of striking gold, which is basically the same as buying a lottery ticket. But in this article, we will talk about a subtle options strategy as a move towards choosing the right short strike. What are the three utmost important aspects you need to be aware of in any kind of business or any kind of options strategy? These are:
- Reducing risk
- Maximising reward
- Minimising the breakeven.
Bull Call Spread Strategy
Let us first begin with an understanding of this particular strategy. The bull call spread by its very nature comprises two call options that create a range with a lower and higher strike price. The bull call spread is ideal for traders with an outlook in which they expect the prices to rise only moderately. Though this options trading strategy enables the trader to limit his losses, at the same time it also caps his upside gains. Let’s see how this strategy is constructed:
Step 1: Buy lower strike calls.
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