Short Straddle Strategy

The call credit spread is a bearish options trading strategy with pre-defined maximum loss . It is comprised of a short call and a long call, and is sometimes also referred to as a “bear call spread” or “short call spread”


-Sell 1 call
-Buy 1 call at any price higher than short call

Trade Example

Stock XYZ is trading at $27 a share.
– Sell 28 call for $1.12
– Buy 30 call for $0.54
– The net credit received for this trade is $0.58

Width of Spread : $30-$28 = $2

Profit & Loss Diagram

Call Credit Spread Summary

Break Even Price Strike price of short leg + Premium
Maximum Profit Limited
Maximum Profit Scenario Stock is at or lower than the strike price of the short call leg
Maximum Loss Limited : Width of spread – Initial Premium
Maximum Loss Scenario Stock is higher than the strike price of long call leg
Why Trade It caps the maximum loss
It uses less buying power as compared to short call
When to Open Stock Outlook : Neutral to moderately bearish
Volatility : High so you can get higher net credit
When to Close When the trade is making 50% of the max profit potential
Legs 2 legs
Passage of time Positive impact on trade.
With passage of time, the value of this option decreases but at lesser rate when compared to just short call
Increase in volatility Negative impact on trade.
With increase in volatility, the value of option increases
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