1. Definition
A bull call spread is an options trading strategy where an investor:
- Buys a call option at a lower strike price
- Simultaneously sells a call option at a higher strike price
Both options share the same underlying asset and expiration date.
2. Profit Mechanism
For the Buyer:
- Earns profit from the difference between strike prices minus the net premium paid.
- Maximum gain = (Higher strike - Lower strike) - Net premium.
- Ideal in bullish markets with moderate upward momentum.
For the Seller:
- Receives limited premium income but caps maximum loss.
Risk Management:
- Losses are restricted to the net premium paid.
- Early exit possible by closing positions before expiration.
3. Key Trading Considerations
When to Use:
✅ Bullish market outlook with expected moderate price rise.
✅ Lower capital requirement vs. outright call buying.
Execution Rules:
- Two-leg strategy (buy + sell calls).
- Same expiration date.
- Different strike prices (lower < higher).
- Equal contract quantities.
Cost Calculation:
- Net Debit = (Premium paid for lower strike) - (Premium received for higher strike).
Example:
- Buy 60K strike call @ $2,000
- Sell 70K strike call @ $1,000
- Net Cost = $1,000
4. Practical Example (Bitcoin Options)
Trade Setup:
- Leg 1: Buy 1 BTC 60K call @ $2,000
- Leg 2: Sell 1 BTC 70K call @ $1,000
- Expiration: Nov 21
Scenario Analysis:
| BTC Price at Expiry | Leg 1 P/L | Leg 2 P/L | Net Profit |
|---|---|---|---|
| 50K (↓) | -$2,000 (OTM) | +$1,000 | -$1,000 |
| 65K (→) | +$3,000 | +$1,000 | +$4,000 |
| 75K (↑) | +$13,000 | -$4,000 | +$9,000 |
Key Insight:
👉 Max profit occurs if BTC ≥ 70K at expiry.
5. FAQ
Q1: What’s the max loss in a bull call spread?
A: Limited to the net premium paid.
Q2: When does this strategy break even?
A: Lower strike + net premium. (e.g., 60K + $1,000 = 61K).
Q3: Why sell the higher strike call?
A: Offsets the cost of buying the lower strike call, reducing risk.
Q4: Can I adjust the strikes later?
A: Yes, but it may require closing/reopening positions.
6. Advantages & Limitations
Pros:
✔ Defined risk/reward.
✔ Lower cost than outright call purchases.
Cons:
✖ Capped upside potential.
✖ Requires precise strike selection.
👉 Learn advanced options strategies here.
Final Tip: Use bull call spreads when anticipating steady price rises—not extreme volatility. Always backtest with historical data!