BULL CALL SPREAD
Overview
Buy a lower-strike call and sell a higher-strike call in the same expiration. The sold call reduces your cost versus a naked long call but caps your profit at the upper strike. A defined-risk, defined-reward way to express a moderately bullish view.
What it does
You're buying a call but partially financing it by selling a higher-strike call. The sold call caps your profit at the upper strike but significantly reduces your cost. If the stock reaches your target price (the short strike) by expiration, you capture maximum profit. If it falls, you lose only the debit paid — never more.
Structure
buy 1 call + sell 1 call
Setup
- 1.Choose a stock you expect to rise moderately.
- 2.Buy 1 Call at a lower strike (near or at the money).
- 3.Sell 1 Call at a higher strike (your price target).
- 4.Use the same expiration — 30–60 days is typical.
- 5.Verify the order is a net debit; confirm max loss = premium paid.
Max profit
(Higher Strike − Lower Strike − Net Debit) × 100. E.g., AAPL: ($200 − $190 − $4.10) × 100 = $590.
Max loss
Net Debit Paid. The most you can lose is what you paid to enter. E.g., $4.10 × 100 = $410.
Breakeven
Lower Strike + Net Debit. E.g., $190 + $4.10 = $194.10.
When to use
When you're moderately bullish with a specific price target and want to reduce the cost of a long call. Best when IV is moderate.
When to avoid
When you expect a massive breakout (a single long call profits more). Don't use when the stock is already trading near or above the short strike.
Example trade
Stock: AAPL at $188 Buy 1 AAPL $190 Call at $5.50 Sell 1 AAPL $200 Call at $1.40 Net Debit: $4.10 ($410) Expiration: 45 days Max Profit: ($200 - $190 - $4.10) × 100 = $590 Max Loss: $410 (the debit paid) Breakeven: $190 + $4.10 = $194.10 If AAPL rises to $205: Max profit = $590 (capped at $200) If AAPL falls to $185: Both options expire worthless, loss = $410
Common mistakes
- ×Choosing a short strike too close to the long strike — the debit is only slightly reduced but upside is severely limited.
- ×Entering when IV is already high — the long call costs more than the sold call saves.
- ×Buying the spread too far out of the money — the stock needs too large a move to profit.
- ×Holding to expiration hoping for maximum profit when 80% of max gain is already captured.
- ×Not having a specific exit plan — define your profit target and stop before entering.
FAQ
When should I close a bull call spread?
Many traders close when they've captured 50–80% of the maximum profit potential, rather than holding to expiration where gamma risk increases.
How wide should the spread be?
Wider spreads offer more profit potential but cost more. A spread 5–10% wide relative to the stock price is common. Match the width to your expected move.
Can I lose more than the debit paid?
No. The maximum loss is always limited to the net debit, regardless of how far the stock falls.