What is a bull call spread?

A bull call spread is a “vertical spread” strategy that consists of buying a call option while also selling another call option at a higher strike price (same quantity and expiration).

Example:

  • Buy the 100 call expiring in June
  • Sell the 110 call expiring in June

In this case, the trade is the 100 / 110 bull call spread in June.

The trader who buys this spread hopes the stock price rises to $110 or above before June expiration.

If the stock price remains below $100 through the expiration in June, the trader will lose the entire premium paid for the call spread. For example, if the trader paid $5.00 for the spread, the maximum loss potential is $500 at expiration if the stock price is below $100:

$5.00 Premium Paid x $100 Contract Multiplier = $500 Maximum Loss Per Spread.

There’s a ton more you need to know about bull call spreads. For a full understanding of bull call spreads and the three other vertical spread strategies, read my comprehensive guide on trading vertical spreads.

I hope this helps!

-Chris

2 Replies to “What is a bull call spread?”

  1. It's a option spread strategy where you buy and sell a call option for the same underlying security.  It is bullish if the option that is bought has a lower strike price than the one that is sold because profit is maximized if the underlier performs bullishly, however the upside potential is capped.  The strategy is employed to offset the cost of the call option by selling another call option at a higher strike.

  2. Let me give you an example to give you a clearer picture.

    Suppose stock XYZ is trading at $50 and you are mildly bullish on the stock. You Buy a 50 at $ 2 and sell a 55 Call at $ 1 giving you a net debit of $1 and that is your max loss in this strategy, it is limited loss strategy and your max profit too is limited in this strategy i.e $4 (difference between the 2 strikes – the premium you have paid)

    This strategy is good for novices as it gives them a limited loss.

    Hope this helps.

    I am an options trader and a trading coach, I teach High Probability Low-risk options trading strategies. You can drop me an email at santosh.bhat85@gmail.com or options.master20@gmail.com

    My Blog: Options Masters

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