Bull Call Spread Strategy
Moderately BullishIntermediateVertical Spread
Buy a call and sell a higher strike call to reduce cost and limit profit potential.
Strategy Overview
Type:Vertical Spread
Outlook:Moderately Bullish
Risk/Reward:Limited Risk, Limited Reward
Complexity:Intermediate
Description
A Bull Call Spread involves buying a call option at a lower strike price and selling a call option at a higher strike price. This limits both profit potential and risk.
Setup
Buy Call Option (Lower Strike)
Strikes: At or near the money
Expiration: Same for both legs
Sell Call Option (Higher Strike)
Strikes: Out of the money
Expiration: Same for both legs
When to Use
- •You expect moderate upward price movement
- •You want to reduce the cost of a long call
- •You want defined risk and reward
- •High volatility makes long calls expensive
Advantages
- +Lower cost than buying a call alone
- +Limited maximum loss
- +Benefits from time decay on short call
- +Profits from moderate stock appreciation
Disadvantages
- -Limited profit potential
- -Requires stock to move above higher strike for max profit
- -Complex assignment risk if short call is in-the-money
- -Transaction costs on two legs
How It Works
1
Buy Call (Lower Strike): Purchase a call option at the lower strike price.
2
Sell Call (Higher Strike): Sell a call option at the higher strike price.
3
Profit Zone: Make money when stock rises to between the two strikes.
Key Metrics
Max Profit:Strike Spread - Net Debit
Max Loss:Net Debit Paid
Breakeven:Lower Strike + Net Debit
Best Case:Stock at or above higher strike
Worst Case:Stock below lower strike at expiration