Covered Call Vs Bull Call Spread Options Trading Strategy Comparison

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

Covered Call Vs Bull Call Spread

	Covered Call	Bull 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 Bull Call Spread (or Bull Call Debit Spread) strategy is meant for investors who are moderately bullish of the market and are expecting mild rise in the price of underlying. The strategy involves taking two positions of buying a Call Option and selling of a Call Option. The risk and reward in this strategy is limited. A Bull Call Spread strategy involves Buy ITM Call Option and Sell OTM Call Option.For example, if you are of the view that NIFTY will rise moderately in near future then you can Buy NIFTY Call Option at ITM and Sell Nifty Call Option at OTM. You will earn massively when both of your Options are exercised and incur huge losses when both Options are not exercised.
Market View	Bullish	Bullish
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 purchased call + net premium paid

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

	Covered Call	Bull 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.	A Bull Call Spread strategy works well when you're Bullish of the market but expect the underlying to gain mildly in near future.
Market View	Bullish When you are expecting a moderate rise in the price of the underlying or less volatility.	Bullish When you are expecting a moderate rise in the price of the underlying.
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 ITM Call Option Sell OTM Call Option A Bull Call Spread strategy involves Buy ITM Call Option + Sell OTM Call Option. For example, if you are of the view that Nifty will rise moderately in near future then you can Buy NIFTY Call Option at ITM and Sell NIFTY 50 Call Option at OTM. You will earn massively when both of your Options are exercised and incur huge losses when both Options are not exercised.
Breakeven Point	Purchase Price of Underlying- Premium Recieved	Strike price of purchased call + net premium paid

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

	Covered Call	Bull 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 trade will result in a loss if the price of the underlying decreases at expiration. The maximum loss is limited to net premium paid. Max Loss = Net Premium Paid Max Loss happens when the strike price of Call is less than or equal to price of the underlying.
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 Limited To The Difference Between Two Strike Prices Minus Net Premium Maximum profit happens when the price of the underlying rises above strike price of two Calls. The profit is limited to the difference between two strike prices minus net premium paid. Max Profit = (Strike Price of Call 1 - Strike Price of Call 2) - Net Premium Paid
Maximum Profit Scenario	Underlying rises to the level of the higher strike or above.	Both options exercised
Maximum Loss Scenario	Underlying below the premium received	Both options unexercised

Pros & Cons or Covered Call and Bull Call Spread

	Covered Call	Bull 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.	Instead of straightaway buying a Call Option, this strategy allows you to reduce cost and risk of your investments.
Disadvantage	Unlimited risk for limited reward.	Profit potential is limited.
Simillar Strategies	Bull Call Spread	Collar, Bull Put Spread

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