How Does A Bull Call Spread Work? Our Expert Explains

bull call spread strategy

As a side note, this max profit occurs when the stock price is at $55.00 (the upper call strike price) or higher at expiration. Also, the trader will sell the further out-of-the money call strike price at $55.00. By selling this call, the trader will receive $18 ($0.18 x 100 shares/contract). If the market finishes at 103, the 110 put is worth $7 and the 105 put is worth $2. The trader received $4, and must now payout $5, resulting in a $1 loss.

Therefore let us take up a few scenarios to get a sense of what would happen to the bull call spread for different levels of expiry. Generally speaking in a bull call spread there is always a ‘net debit’, hence the bull call spread is also called referred to as a ‘debit bull spread’. Given this you expect the stock price to react positively to the result announcement. However because the guidance was laid out in Q2 the market could have kind of factored in the news. This leads you to think that the stock can go up, but with a limited upside. Spread strategy such as the ‘Bull Call Spread’ is best implemented when your outlook on the stock/index is ‘moderate’ and not really ‘aggressive’.

CORE Call Debit Spread Bot (Advanced)

If you are comfortable with the risk and you are exceptionally bullish on a stock, then you might prefer a long call strategy over a bull call spread since it offers more profit potential. If your forecast was incorrect and the stock price is approaching or below strike A, you want implied volatility to increase for two reasons. First, it will increase the value of the option you bought faster than the out-of-the-money option you sold, thereby increasing the overall value of the spread.

What is the formula for the bull spread?

Bull Call Spread Max Profit = Difference between call option strike price sold and call option strike price purchased – Premium Paid for a bull call spread.

In that case, the short call would expire worthless and the long call’s intrinsic value would equal the debit. Up to a certain stock price, the bull call spread works a lot like its long call component would as a standalone strategy. However, unlike with a plain long call, the upside potential is capped. That is part of the tradeoff; the short call premium mitigates the overall cost of the strategy but also sets a ceiling on the profits. Commodities, bonds, stocks, currencies, and other assets form the underlying holdings for call options. Call options can be used by investors to benefit from upward moves in an asset’s price.

How To Calculate Partial Profit

This makes the net payable premium INR 9, which is nothing but the difference in the premium paid for long strike call and the premium collected from the short strike call. A risk of INR 20 for a reward of mere INR 10 doesn’t look the right thing to do. A trader believes that the market will bull call spread strategy have a moderate rise before the options expire. A bull spread consists of a buy leg and a sell leg of different strikes for the same expiration and same underlying contract. You will have no further returns to come and no further liabilities, but you have lost your initial $150 investment.

bull call spread strategy

A mutual fund or ETF prospectus contains this and other information and can be obtained by emailing This strategy is also called a call debit spread because it causes the trader to incur a debit (spend money) up front to enter the position. Regardless of the theoretical price impact of time erosion on the two contracts, it makes sense to think the passage of time would be somewhat of a negative.