What are Bull Call Spreads?

A bull call spread is a trading strategy in the options market in which the trader purchases two call options on the same asset, and with the same expiration date/time, but with different strike prices. There is a short call and a long call. The trader purchases a call option with a lower strike price (the long call) and simultaneously sells a call option with a higher strike price (the short call). In essence, if we take two strike prices ($50 and $55) for a stock XY, this is what the trader does in the transaction:

Long 1 XY 50 Call

Short 1 XY 55 Call

Clearly we can see that the long call has a lower strike price, and the short call has a higher strike price. The number “1” in the trade refers to the number of options contracts purchased. 1 options contract contains 100 shares.

The bull call spread option is a type of vertical spread option.  Placing a short call with a higher strike allows the bull call spread trade to have a higher maximum potential profit. However, higher strike prices limit the premium received on the transaction. Profit in this trade is calculated as follows:

Profit = (higher strike price – lower strike price) – premium paid on transaction

The loss in the trade is limited to the net premium paid on the transaction.

Trade Example

For this example, we will assume that a stock XY is trading at $50. The trader wants to play the bull call spread on this stock, and buys a standard option contract worth $3 per share, or $600 per contract, with a strike price of $50, and sells an option contract at a strike price of $57.5, at $1 per share of $200 per contract.

In simple terms,

Long 1 XY 50 Call ($300)

Short 1 XY 57.5 Call ($100)

The net debit for this trade is $300 – $100 = $200.

If the price of this stock closes above $51 when the trade expires, the trade is profitable. If the price of the stock XY hits $55, the $50 long call option will close at $5 per share profit, or $500 per contract, while the $57.5 short option will expire worthless.

So the trader’s profits will be:

the gain on his trade ($500) – the net debit the trade ($200) = $300

If the price of this stock closes at $50, both trades are out-of-the-money and the trader will lose money on both contracts. The amount initially credited will be deducted from this amount to give his net loss.

There is also a trade outcome where the trade can end at breakeven point, but this is rare. Usually, the trade will end either in a profit or loss for the trader.

As stated above, the maximum profit per share that the trader can make on this trade is the difference in the strike prices MINUS the transaction cost:

$(57.5 – $50) – $2 = $5.50 per share or $550 per contract.

Maximum loss is limited to $2 per share, which is the net debit on the trade.

Considerations

As in other options trade types, the trader must analyse the underlying asset to determine its price direction in order to avoid sustaining losses. An appropriate expiry date/time must be set by the trader so that there is just enough time for the asset to respond as the trader wishes. The essence of the bull call spread strategy is to hedge the trade to protect against losses, and if well traded, will make money for the trader.








** Results will vary from student to student depending on the correct use of the system and the actual use of the system. Many never use the system. Some never consistently apply the system. Stock and options choice will vary in the results they product. We can not promise you any future success since we are dealing with price markets. Our, your best bet for success is in taking a chance on a system that has performed well consistently over time in the hopes that possibility and probability that the systems performance, in combination with your performance of that system will do well at the present and into the future.... We make no promises or guarantees of future performance whatsoever however good our trading systems & strategies may be at the point in time of performance results. Posted customer feed back was done voluntarily by customer and we did not even ask. We appreciate all feed back from our customers.

Note: typical results or average results will range from lost money for those who break rules and refuse to trade the system correctly to zero for people who don’t take any action to some of the customer examples as you see above and to results customers have not told us about. Bottom line: this is trading: you can’t ‘expect guaranteed results’ because that is a losing mindset in trading and it doesn’t make any sense to good trading. You get a system to increase your chance, your probability, your potential for success. The only way you could ‘guaranteed make money’ like past results is to have a crystal ball – the pursuit of which, searching for a crystal ball is a ever losing adventure. Trade right. Trade smart and maybe you could have great success too!

**** Any student testimonials were submitted by customer by their own inspiration and did not receive any compensation or their testimony, success story, review or feedback. Posted for encouragement. Your results may vary worse or better.Recurring Membership management billing is managed entirely by you in your back office so you can stop, cancel your membership at anytime.RECURRING BILLING FOR MEMBERSHIPS, TRADING SIGNALS TERMS: If you are signing up for a membership that has monthly billing or any other type of billing that is recurring it is your responsibility to cancel your membership from your members back office. You can do so by logging in, going to Payments/ Access menu button, finding your order and then click on stop recurring. We do not handle cancellation request. You will be responsible for canceling your membership before re billing if you want to cancel. We will not cancel for you. We will not go back and refund your order because you forgot to cancel ahead of time. On the other hand, providing you the ability to manage your own membership gives you the control and advantage as a consumer so you don't have to worry and you can cancel at anytime you want.