Short Call: Options Trading Strategy

BEARISH STRATEGIES

Short Call

When you buy a Call you are hoping that the underlying stock / index would rise. When you expect the underlying stock / index to fall you do the opposite. When an investor is very bearish about a stock / index and expects the prices to fall, he can sell Call options. This position offers limited profit potential and the possibility of large losses on big advances in underlying prices. Although easy to execute it is a risky strategy since the seller of the Call is exposed to unlimited risk.

Market Scenario: Bearish

Risk: Unlimited

Reward: limited

BEP: Call Strike + Premium

EXAMPLE:
 

Entry:

SPOT

5100

                       

	STRIKE	PREMIUM
SELL CALL	5000	150

BEP = 5000 + 50 = 5150

On Exit if:

SPOT	CALL PAY-OFF	PREMIUM RECEIVED	STRATEGY PAY-OFF
4800	0	150	150
4900	0	150	150
5000	0	150	150
5100	-100	150	50
5150	-150	150	0
5200	-200	150	-50
5300	-300	150	-150
5400	-400	150	-250
5500	-500	150	-350

Short Call - Strategy Pay-Off