Bull Call Spread
In short
Buy a lower strike call, sell a higher strike call — cheaper bullish bet
Instead of buying an expensive call, you buy one call and sell another at a higher price. The second sale reduces your cost. You profit if the stock rises, but only up to the higher strike. Cheaper than a naked call.
A bull call spread involves buying a call at a lower strike and selling a call at a higher strike, same expiration. The premium received from the short call reduces the net cost. Max profit = difference in strikes minus net premium. Max loss = net premium paid.
Formula
Max Profit = (High Strike - Low Strike) - Net Premium; Max Loss = Net PremiumRelated concepts
- Call Option — A call option is like a coupon that lets you buy a stock at today's price even in the future. If the stock rises, you profit. If it falls, you only lose what you paid for the coupon (the premium).
- Bear Put Spread — Buy a put at a higher price and sell one at a lower price. The one you sell reduces your cost. You profit if the stock falls, but only down to the lower strike. Cheaper than a naked put.
- Iron Condor — An iron condor sells both a call spread and a put spread. You collect premium and profit if the stock stays within a range. Think of it as betting the stock won't make a big move. Ideal when you expect a calm, boring market.
- Delta — If a call has delta of 0.5, it gains $0.50 for every $1 the stock rises. Delta 1.0 means the option moves dollar-for-dollar with the stock. At-the-money options typically have delta near 0.5.