Understanding the Bull Call Spread: A Smarter Way to Trade Options
When traders are moderately bullish on a stock or index but don’t want to commit too much capital or take on unlimited risk, they often turn to a bull call spread.
It’s a simple yet effective strategy that balances potential gains and losses.
What Is a Bull Call Spread?
A bull call spread involves buying one call option at a lower strike price and simultaneously selling another call option at a higher strike price, both with the same expiration date.
- Long call (lower strike): This is your bet that the stock will rise.
- Short call (higher strike): This offsets part of the cost by collecting premium but caps your maximum profit.
Why Use It?
The bull call spread is ideal if you expect a moderate rise in the underlying asset—not a massive rally. It reduces upfront cost compared to just buying a call, but in exchange, you agree to give up unlimited upside.
Pros:
- Lower cost than buying a naked call.
- Defined risk and reward.
- Good for modest bullish views.
Cons:
- Profit is capped.
- Requires precise strike selection.
Example
Suppose stock XYZ is trading at $100:
- Buy a $100 call for $6.
- Sell a 105 call for $2.
Net cost (debit): $4.
Maximum profit: $1 (difference between strikes minus net debit).
Maximum loss: $4 (the debit paid).
- If XYZ climbs above $105 at expiration, you pocket the maximum profit.
- As the price goes down, the profit turns into a loss
- If it stays below $100, you lose only your initial $4.
Bottom Line
The bull call spread is a conservative way to bet on upward movement.
You won’t hit a jackpot, but you also won’t wake up to catastrophic losses.
For traders who value controlled risk and steady returns, this strategy deserves a place in the playbook.