Options Strategies: Bull Call Spread

Securities or other financial instruments mentioned in the material posted are not suitable for all investors. Before making any investment or trade, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice. A bull call spread is constructed by buying a call option with a lower strike price (K), and selling another call option with a higher strike price. The primary benefit of using a bull call spread is that it costs lower than buying a call option. In the example above, if Jorge only used a call option, he would need to pay a $10 premium. If the stock dropped to $0, Jorge would only realize a loss of $8 versus $10 (if he were to just use a long call option).

• Still, it is good to know how volatility will affect the pricing of the options contracts.
• 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’.
• You can benefit from this strategy by buying a Call with a Strike price of 10,300 at a premium of 170 and selling a Call option with a strike price 10,700 at a premium of Rs 60.
• The price forecast can be based on a variety of factors such as economic indicators, political events, news about a company or industry and technical analysis.
• However you do not know by how many basis points the results will be better.

If the investor guesses wrong, the new position on Monday will be wrong, too. Say, assignment is expected but fails to occur; the investor will unexpectedly be long the stock on the following Monday, subject to an adverse move bull call spread strategy in the stock over the weekend. For example, an investor could buy a $50 call option and sell a $55 call option. If the spread costs $2.00, the maximum loss possible is -$200 if the stock closes below $50 at expiration.

Risk vs. Reward

System response and access times may vary due to market conditions, system performance, and other factors. Max Loss happens when the strike price of Call is less than or equal to price of the underlying. A Bull Call Spread strategy involves Buy ITM Call Option + Sell OTM Call Option.

The bull call spread, as with any option spread, can be executed as a “unit” in one single transaction, but not as separate buy and sell transactions. For this bullish vertical spread, a bid and offer for the whole package can be requested through your brokerage firm from an exchange where the options are listed and traded. A bullish call spread option, also known as a bull call spread option, is a trading strategy that aims to capitalize in an increase in the price of a given market or asset. The bull call spread option strategy consists of two call options that create a range that outlines a lower strike point and an upper strike point.

Bull Call Spread Options

The trader will realize maximum profit on the trade if the underlying closes above the short strike on expiration. If the stock price is between 145 and 155 at expiration, only the long call expires in-the-money, resulting in a position of +100 shares for the call spread buyer. A different pair of strike prices might work, provided that the short call strike is above the long call’s. The choice is a matter of balancing risk/reward tradeoffs and a realistic forecast.

• Any specific securities, or types of securities, used as examples are for demonstration purposes only.
• In order to implement the bull call spread, the trader buys 100 call options on BTC with an exercise price of $22,000 for $50,000.
• They can be created with either all calls or all puts, and can be bullish or bearish.
• Traders who trade large number of contracts in each trade should check out OptionsHouse.com as they offer a low fee of only $0.15 per contract (+$4.95 per trade).
• Commodities, bonds, stocks, currencies, and other assets form the underlying holdings for call options.

As a general rule of thumb, you should write the contracts with a strike price roughly equal to where you expect the price of the underlying security to move to. For example, if you were expecting the underlying security to move from $50 to $55, then you would write contracts with a strike price of $55. If you felt the underlying security would only increase by $2, then you would write them with a strike price of $52. The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security.

Simillar Strategies

I suppose this chapter has laid a foundation for understanding basic ‘spreads’. Going forward I will assume you are familiar with what a moderately bullish/bearish move would mean, hence I would probably start directly with the strategy notes. So the point is that, the risk reward changes based on the strikes that you choose. However don’t just let the risk reward dictate the strikes that you choose. Do note you can create a bull call spread with 2 options, for example – buy 2 ATM options and sell 2 OTM options.

No content on the Webull Financial LLC website shall be considered as a recommendation or solicitation for the purchase or sale of securities, options, or other investment products. All information and data on the website is for reference only and no historical data shall be considered as the basis for judging future trends. You have been researching a stock and have formed a bullish opinion on its value, forecasting that it will rise in price over the coming months. You would like to limit your risk and are comfortable paying money to establish this position. For more information on long calls and bullish spreads, please visit Understanding Options on Schwab.com. Spread trading is considered an intermediate options strategy and requires options approval level 2 at Charles Schwab.

Both calls have the same underlying stock and the same expiration date. A bull call spread is established for a net debit (or net cost) and profits as the underlying stock rises in price. Profit is limited if the stock price rises above the strike price of the short call, and potential loss is limited if the stock price falls below the strike price of the long call (lower strike). The options marketplace will automatically exercise or assign this call option. The investor will sell the shares bought with the first, lower strike option for the higher, second strike price. As a result, the gains earned from buying with the first call option are capped at the strike price of the sold option.

If the stock price is above 155 at expiration, both calls expire in-the-money. At expiration, an in-the-money long call expires to +100 shares, and an in-the-money short call expires to -100 shares, which results in no stock position for the call spread buyer. This strategy breaks even at expiration if the stock price is above the lower strike by the amount of the initial outlay (the debit). In that case, the short call would expire worthless and the long call’s intrinsic value would equal the debit. Call debit spreads benefit when the underlying security’s price increases.

Potential Position Created at Expiration

Carefully consider the investment objectives, risks, charges and expenses before investing. All investments involve risk and losses may exceed the principal invested. Past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns. Firstrade is a discount broker that provides self-directed investors with brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice. A bull call spread purchased as a unit for a net debit in one transaction can be sold as a unit in one transaction in the options marketplace for a credit, if it has value. This is generally the manner in which investors close out a spread before its options expire, in order to cut a loss or realize profit.

It can be established in one transaction, but always at a debit (net cash outflow). The call with the lower strike price will always be purchased at a price greater than the offsetting premium received from writing the call with the higher strike price. Maximum loss for this spread will generally occur as the underlying stock price declines below the lower strike price. If both options https://www.bigshotrading.info/blog/bollinger-bands-what-should-you-know-about-this-indicator/ expire out-of-the-money with no value, the entire net debit paid for the spread will be lost. Bull call spreads have limited profit potential, but they cost less than buying only the lower strike call. Since most stock price changes are “small,” bull call spreads, in theory, have a greater chance of making a larger percentage profit than buying only the lower strike call.

Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. You may switch the view using the links at the top of the screener results table. The Main View shows the Volume and Open Interest for each option, while the Dividend & Earnings View can be used to highlight strategies with upcoming dividends and earnings. The Filter view shows you the data contained in the field(s) you’ve added to the screener. The best bull call strategy is one where you think the price of the underlying stock will go up.