Establishing a bull call spread involves the purchase of a call option on a particular underlying stock, while simultaneously writing a call option on the same underlying stock with the same expiration month, at a higher strike price. Both the buy and the sell sides of this spread are opening transactions, and are always the same number of contracts. This spread is sometimes more broadly categorized as a "vertical spread". The bull call spread, as any spread, can be executed as a "unit" in one single transaction, not as separate buy and sell transactions.
Market Scenario: Moderately Bullish to Bullish
Risk: Limited
Reward: Limited
BEP: Strike Price of Purchased Call + Net Debit Paid
EXAMPLE:
Entry:
SPOT | 5000 |
| | STRIKE | PREMIUM |
| BUY CALL | 5100 | 60 |
| SELL CALL | 5200 | 30 |
BEP = 5100 +30 = 5130
On Exit if:
| SPOT | BUY CALL PAY-OFF | SELL CALL PAY-OFF | STRATEGY PAY-OFF |
| 4800 | -60 | 30 | -30 |
| 4900 | -60 | 30 | -30 |
| 5000 | -60 | 30 | -30 |
| 5100 | -60 | 30 | -30 |
| 5130 | -30 | 30 | 0 |
| 5200 | 40 | 30 | 70 |
| 5300 | 140 | -70 | 70 |
| 5400 | 240 | -170 | 70 |
| 5500 | 340 | -270 | 70 |
Strategy Pay-Off
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