13.1 – Understanding the Bull Call Spread
As we’ve learned from the previous videos, if you have a bullish view on a stock, you can buy a call or sell a put. But naked options trades can be risky if your view is wrong. We will learn more in this video.
We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.
Key takeaways from this chapter
- A moderate move would mean you expect a movement in the stock/index, but the outlook is not too aggressive
- One has to quantify ‘moderate’ by evaluating the volatility of the stock/index
- Bull Call spread is a basic spread that you can set up when the outlook is moderately bullish
- Classic bull call spread involves buying ATM option and selling OTM option – all belonging to same expiry, same underlying, and equal quantity
- The theta plays an essential role in strike selection
- The risk-reward gets skewed based on the strikes you choose