A bull call spread is not much different from short selling of stocks.
In a bull call spread, one simultaneously buys call options at a lower price and then short sells the call options of the same amount at a higher price than that of the purchase price, thereby netting a profit.
In a bull call spread, both the long position and the short one have the same expiry date as well.
They are known ads bull call spread because the stance that is taken by you while trading in the call option is based on the assumption that the trend is bullish and that the price of option will rise higher the price at which you bought it which is why you make a profit.
Since it is a call option, if you see that the trend is not working on your offer and you might be facing a possible loss, you can always take a cheaper position rather than going long all the way with the call options.
Thus this surely helps you minimize the risks and allows for more freedom with the option trading.
Here are some pointers for a successful bid at bull call spread trading.
The first step is to look out for stocks that are showing a bullish trend.
This can be achieved by monitoring the stock for some time and picking out the ones who have been consistently doing well.
The next step is look for the options available for the stock.
Some stocks might not have options attached to them and some might not have on offer enough security in the form of liquidity in the market to allow for an easy entry and quick exit in case of unanticipated movement.
The more the liquidity, the safer it is to venture into the particular call option.
Taking advantage of a LEAPS options is a good idea when it comes to venturing into bull call spreads.
Otherwise, the best bet is to enter into options that have 90 days to go before they expire.
This offers the ideal time frame to purchase enough call options and the wait for them to climb enough and then sell them at the elevated price.
Step four would be to ensure that the call options you've zeroed in on is not very volatile has been known to show some stability when it comes to trading.
Step five is to make sure you select the proper buying and selling prices i.
e.
deciding when to enter and when to exit the market.
This is a crucial step which can determine if and how much profits you can make.
Step six involves deciding the best kind of spread you want to achieve i.
e.
a Limited Risk, Limited Reward, Breakeven or the Return on Investment spread.
Step seven is the use of technical tools such as downloadable software that can help visualising the extent of the spread and the profits and losses possible.
Step eight is to keep track of the options that you have chosen along with the purchase and sale details.
Step nine is to begin with the end in mine i.
e.
to have an exit strategy and the kind of profits you want to make before getting involved in the bull call spread.
The next step is to actually place the trade through your brokerage firm and ensuring that it is a limit order.
Continuously monitoring the market to review your strategy if necessary based on the stock movements is the next step.
And the last crucial step is to know when to exit in order to make a profit.
This decision should be based on the movement of the underlying stocks.
By keeping in mind these pointers, bull call spreads are made easier.