Bullish options strategy
Bull call spread
Buy a call and sell a higher call. Cheaper than a call on its own, with profit capped at the higher strike.
BullishAny IVDefined riskLevel 3 · Buying options
Bull call spread payoff
An example on a $100 stock with 30% implied volatility. The dashed line is the profit or loss at expiry; the solid line is what the position is worth today.
The trade
Buy 1 $98 call · 45 days · $5.51
Sell 1 $107 call · 45 days · $1.85
Net debit $366
Max profit$534
Max loss−$366
Break-even$101.66
Chance of profit44%
How it works
- You pay a net debit; that is the most you can lose.
- Most you can make: the distance between the strikes minus the debit.
- The short call pays for part of the long call and offsets some of its time decay and volatility risk.
When to use it
- You expect a moderate rise up to a target price.
- Options are expensive and you want to reduce the cost of a bullish trade.
Managing the trade
- Put the short strike near your price target.
- Close early once most of the max profit is captured; the last few dollars take the longest.
Risks
- Capped upside if the stock rockets.
- Losing the debit if the stock stays below the long strike.