Bull Call Spread Explained
A bull call spread buys a call and sells a higher-strike call for a net debit: a cheaper, defined-risk way to trade a moderate rally.
What it is
A bull call spread, or debit call spread, buys one call and sells another call at a higher strike in the same expiration. The sold call reduces the cost of the bought call, so you pay a smaller net debit than for the call alone, in exchange for capping your gain at the higher strike. It is a defined-risk, moderately bullish trade: you profit if the underlying rises toward or through the short strike, your maximum gain is fixed, and your maximum loss is limited to the debit paid. It is the standard way to express a bullish view with a price target rather than an unlimited-upside call.
Payoff at expiration
When to use it
Use a bull call spread when you expect a moderate rise to a specific level rather than an explosive move, and when you want to cut the cost and the vega of a naked long call. It works well when implied volatility is not extreme, since the short call helps finance the position and reduces the volatility drag. Set the short strike near your price target, since gains are capped there, and choose an expiry that gives the move time to happen. Avoid it if you expect a large breakout, where the cap would leave most of the move on the table, or if you need the leverage of a single long call.
Greeks profile
| Delta | Positive. The spread gains as the underlying rises, with delta peaking between the strikes and fading near the cap. |
| Gamma | Modest. Long gamma below the long strike, short gamma near the short strike as expiration nears. |
| Theta | Small and mixed. Time decay works against you when the position is out-of-the-money and for you once it is in-the-money past the long strike. |
| Vega | Slightly long below the strikes, but much smaller than a naked call because the short call offsets most of the vega. |
Max profit, max loss & break-evens
Max profit = width between strikes − net debit, reached at or above the short call strike. Max loss = net debit paid, realised if the underlying finishes below the long call strike. Break-even = long call strike + net debit paid.
Concrete example
A stock trades at 100. You buy the 100 call for 3 and sell the 105 call for 1, a net debit of 2. Max profit is the 5-point width minus the 2 debit, so 3, reached if the stock finishes at or above 105. Max loss is the 2 debit, if the stock stays below 100. Break-even is 102. You have risked 2 to make 3 on a view that the stock climbs to around 105.
Risks & management
The risk is capped at the debit, which is the strategy's main appeal, but two subtler costs matter. The upside is capped at the short strike, so a big breakout leaves most of the move uncaptured. And the position needs the move to happen before expiry, since a spread that is right on direction but too slow can still expire at partial value. Manage by taking profit when most of the spread's value is realised rather than holding for the last few cents of a capped payoff, and by choosing strikes that match a realistic target and timeframe.
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