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OPTIONS STRATEGIES·BULLISH·2 LEGS

Bull call spread

Buy a lower-strike call, sell a higher-strike call (same expiry). Cheaper than a long call alone but caps your upside at the upper strike.

INPUTS
Underlying price
$
Centers the payoff chart and computes P&L at this price.
LEGS
Long lower call
Type
Side
Strike
$
Qty
Premium
$
Short upper call
Type
Side
Strike
$
Qty
Premium
$
RESULT
BE $101.50spot $100.00
$60.002 strikes$140.00
P&L at current spot (expiry)
−$150
Net debit−$150
Max profit+$350
Max loss−$150
Breakeven$101.50
Risk / reward2.33 : 1
RISK PROFILE
Max profit
Strike width × 100 − net debit
Max loss
Net debit paid
Breakeven
Lower strike + (debit ÷ 100)
HOW IT WORKS

How a bull call spread works

A bull call spread buys one call and sells a higher-strike call in the same expiry. The call you sell finances part of the call you buy, so the net debit — and the maximum loss — is smaller than the long call alone. In return, your profit stops at the higher strike.

This is the structural answer to the long call's main weakness. A long call pays for a lot of extrinsic value that decays against you; selling the upper strike hands part of that decay problem to someone else. You are trading an unlimited upside you probably were not going to reach for a materially lower cost of entry.

Both maximum profit and maximum loss are fixed the moment you open it. Max loss is the net debit. Max profit is the width between the strikes minus that debit. Breakeven is the lower strike plus the debit, which sits below the long call's breakeven at the same strike — the spread starts making money sooner.

WORKED EXAMPLE

A worked example

XYZ trades at $100. You buy the $100 call for $4.00 per share and sell the $110 call for $1.50 per share, both expiring in 45 days. The strikes are $10 apart.

Net debit
$4.00 − $1.50 = $2.50 × 100 = $250 (max loss)
Breakeven
$100 long strike + $2.50 = $102.50
Max profit
($10 width − $2.50) × 100 = $750, at or above $110
At expiry, XYZ = $110 or higher
+$750, capped — further upside is not yours
At expiry, XYZ ≤ $100
Both expire worthless, −$250

Risking $250 to make $750 is a 3:1 payoff, and breakeven sits at $102.50 instead of the $104.00 a bare $100 call would have needed. The cost is that $130 pays exactly the same as $110.

FIT

When a bull call spread fits — and when it doesn't

Consider it when
  • You expect a move up to a level you can name, rather than an open-ended rally.
  • Option premiums are rich enough that buying a naked call feels expensive — the short leg recovers some of that.
  • You want the risk and reward both known before you enter.
Think twice when
  • You are positioning for a genuine breakout. Capping the upside defeats the purpose.
  • The spread is so wide that the debit approaches the width, leaving a poor payoff for the risk.
  • Liquidity is thin. Two legs means two bid-ask spreads on the way in and two more on the way out.
FAQ

Common questions

What is the maximum loss on a bull call spread?

The net debit paid. Buying the $100 call at $4.00 and selling the $110 at $1.50 costs $2.50 per share, so $250 per contract is the most you can lose.

How do I calculate max profit on a bull call spread?

(Strike width − net debit) × 100. A $10-wide spread opened for a $2.50 debit pays a maximum of $750 per contract, reached at or above the short strike at expiry.

Is a bull call spread better than buying a call?

Neither is strictly better. The spread costs less, breaks even sooner, and decays more slowly. The long call keeps unlimited upside. The spread suits a target; the call suits a breakout.

What happens if only one leg is assigned?

Early assignment on the short call leaves you short 100 shares against your long call, which still caps the risk. Most brokers let you exercise the long leg to close it out, but the cleanest fix is usually to close the whole spread.

RELATED STRATEGIES
Long call
Bullish · Limited risk, unlimited upside.
Bear call spread
Bearish · Credit spread, defined risk.
Iron condor
Neutral · Defined-risk credit, profits when stock stays in range.
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