Bull Call Spread


DEFINITION of 'Bull Call Spread'

An options strategy that involves purchasing call options at a specific strike price while also selling the same number of calls of the same asset and expiration date but at a higher strike. A bull call spread is used when a moderate rise in the price of the underlying asset is expected. The maximum profit in this strategy is the difference between the strike prices of the long and short options, less the net cost of options. Most often, bull call spreads are vertical spreads.

BREAKING DOWN 'Bull Call Spread'

Let's assume that a stock is trading at $18 and an investor has purchased one call option with a strike price of $20 and sold one call option with a strike price of $25. If the price of the stock jumps up to $35, the investor must provide 100 shares to the buyer of the short call at $25. This is where the purchased call option allows the trader to buy the shares at $20 and sell them for $25, rather than buying the shares at the market price of $35 and selling them for a loss.

  1. Short Leg

    Any contract in an option spread in which an individual holds ...
  2. Seagull Option

    A three-legged option strategy, often used in forex trading, ...
  3. Call

    1. The period of time between the opening and closing of some ...
  4. Exercise

    To put into effect the right specified in a contract. In options ...
  5. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  6. Vertical Spread

    An options trading strategy with which a trader makes a simultaneous ...
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