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Call Spread

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Apart from usual and standard Puts and Calls trading strategies, there exist a few types of Call Spread – buy/sell of Call options with the same expirations but with different strike prices.

Bull

Bull (ish) Call spread – is the process when a Call with a lower price is bought and a Call with a higher price is sold. It is used when expecting a moderate cost rising of a basic asset. This concept can be also created in an artificial way with the help of long-put on a lower level and short-call on a higher level along with long on a basic asset. One more variant – long-call on a cheaper level and short-put on a more expensive level, plus a short position on a basic asset. The profitability of this particular spread is equal to the differential of strike distinctions and premiums for an option. Speaking about the loss – it is just the premiums.

Bear

Bear (ish) Call Spread – is the process when a Call  of a higher level is bought and a Call  of a lower level is sold. This process is used when predicting moderate price decrease on a basic asset. The profit of this particular spread equals to the differential of two strikes and price of two options. It is possible to artificially create Call spread due to a short-put at a lower price and long-call at a higher price.

Proportional Call Spread

The strategy of a proportional call spread is based on the idea of buying a Call at lower prices and selling two Calls at higher ones. Proportional call spread is used when hesitating about price changes as well as price changes for assets.

Speaking about Call Ratio Spread disadvantages, there is only one that is really considerable. If the prices don’t change, then the proportional Call spread generates a certain profit, but when the prices decrease, then it doesn’t limit the losses.

Call Ratio Backspread

There is one more strategy called- Call Ratio Backspread – buying of 2 Puts at a lower price and selling 1 Put at a higher cost. This particular strategy is a little bit better then the Proportional Call spread because the losses are limited by the premium and the profit is absolutely not limited especially in case of rising prices for a basic asset. As a result, you receive an income when the price for a basic asset increases and even a little plus when the price for an asset decreases. Apart from that, you limit the losses if the price doesn’t change.

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