Covered Call Vs Bear Call Spread Options Trading Strategy Comparison

Compare Covered Call and Bear Call Spread options trading strategies. Find similarities and differences between Covered Call and Bear Call Spread strategies. Find the best options trading strategy for your trading needs.

Covered Call Vs Bear Call Spread

	Covered Call	Bear Call Spread


About Strategy	A Covered Call is a basic option trading strategy frequently used by traders to protect their huge share holdings. It is a strategy in which you own shares of a company and Sell OTM Call Option of the company in similar proportion. The Call Option would not get exercised unless the stock price increases. Till then you will earn the Premium. This a unlimited risk and limited reward strategy. Let's assume you own TCS Shares and your view is that its price will rise in the near future. You will Sell OTM Call Option of TCS at a price, where you target to sell your shares. You will receive premium amount for selling the Call option and the premium is your income.	A Bear Call Spread strategy involves buying a Call Option while simultaneously selling a Call Option of lower strike price on same underlying asset and expiry date. You receive a premium for selling a Call Option and pay a premium for buying a Call Option. So your cost of investment is much lower. The strategy is less risky with the reward limited to the difference in premium received and paid. This strategy is used when the trader believes that the price of underlying asset will go down moderately. This strategy is also known as the bear call credit spread as a net credit is received upon entering the trade. The risk and reward both are limited in the strategy. How to use the bear call spread options strategy? The bear call spr... Read More
Market View	Bullish	Bearish
Strategy Level	Advance	Beginners
Options Type	Call + Underlying	Call
Number of Positions	2	2
Risk Profile	Unlimited	Limited
Reward Profile	Limited	Limited
Breakeven Point	Purchase Price of Underlying- Premium Recieved	Strike Price of Short Call + Net Premium Received

When and how to use Covered Call and Bear Call Spread?

	Covered Call	Bear Call Spread
When to use?	The covered call option strategy works well when you have a mildly Bullish market view and you expect the price of your holdings to moderately rise in future.	The bear call spread options strategy is used when you are bearish in market view. The strategy minimizes your risk in the event of prime movements going against your expectations.
Market View	Bullish When you are expecting a moderate rise in the price of the underlying or less volatility.	Bearish When you are expecting the price of the underlying to moderately go down.
Action	Buy Underlying Sell OTM Call Option Let's assume you own TCS Shares and your view is that its price will rise in the near future. You will Sell OTM Call Option of TCS at a price, where you target to sell your shares. You will receive premium amount for selling the Call option and the premium is your income.	Buy OTM Call Option Sell ITM Call Option Let's assume you're Bearish on Nifty and are expecting mild drop in the price. You can deploy Bear Call strategy by selling a Call Option with lower strike and buying a Call Option with higher strike. You will receive a higher premium for selling a Call while pay lower premium for buying a Call. The net premium will be your profit. If the price of Nifty rises, your loss will be limited to difference between two strike prices minus net premium.
Breakeven Point	Purchase Price of Underlying- Premium Recieved	Strike Price of Short Call + Net Premium Received The break even point is achieved when the price of the underlying is equal to strike price of the short Call plus net premium received.

Compare Risks and Rewards (Covered Call Vs Bear Call Spread)

	Covered Call	Bear Call Spread
Risks	Unlimited Maximum loss is unlimited and depends on by how much the price of the underlying falls. Loss happens when price of underlying goes below the purchase price of underlying. Loss = (Purchase Price of Underlying - Price of Underlying) + Premium Received	Limited The maximum loss occurs when the price of the underlying moves above the strike price of long Call. Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received
Rewards	Limited You earn premium for selling a call. Maximum profit happens when purchase price of underlying moves above the strike price of Call Option. Max Profit= [Call Strike Price - Stock Price Paid] + Premium Received	Limited The maximum profit the net premium received. It occurs when the price of the underlying is greater than strike price of short Call Option. Max Profit = Net Premium Received - Commissions Paid
Maximum Profit Scenario	Underlying rises to the level of the higher strike or above.	Underlying goes down and both options not exercised
Maximum Loss Scenario	Underlying below the premium received	Underlying goes up and both options exercised

Pros & Cons or Covered Call and Bear Call Spread

	Covered Call	Bear Call Spread
Advantages	It helps you generate income from your holdings. Also allows you to benefit from 3 movements of your stocks: rise, sidewise and marginal fall.	It allows you to profit in a flat market scenario when you're expecting the underlying to mildly drop, be range bound or marginally rise.
Disadvantage	Unlimited risk for limited reward.	Limited profit potential.
Simillar Strategies	Bull Call Spread	Bear Put Spread, Bull Call Spread

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