A bull call spread means buying a call at one strike and selling a call at a higher strike with the same expiry. The call you sell lowers the cost of the call you buy.
Example
The underlying trades at 200. You buy the 200 call for 8 and sell the 210 call for 3. Your net cost is 5.
- Maximum loss: 5, the net debit, if the price ends below 200.
- Maximum profit: 10 – 5 = 5, if the price ends above 210.
- Break-even: 205.
Why use it
Compared with buying a call outright, the spread is cheaper, loses less to time decay, and is less hurt by a fall in implied volatility. The trade-off is that your profit is capped at the upper strike.
Choosing strikes
Set the short strike near a realistic target, not a dream one. Spreads where the upper strike is far away look attractive, but they rarely reach maximum profit.
This article is for education only and is not financial advice. Options involve risk and are not suitable for every investor.