The bull call spread is one of the most popular bullish options strategies among traders. It offers a defined-risk way to profit from upward stock movement while costing less than buying a call outright. This guide covers everything you need to know about trading bull call spreads effectively.
What is a Bull Call Spread?
A bull call spread is a vertical spread that involves buying a call option at a lower strike price and simultaneously selling a call option at a higher strike price. Both options have the same expiration date. Because you pay more for the long call than you receive for the short call, this is a debit spread - you pay to enter the trade.
Key concept: The bull call spread profits when the underlying stock rises. Your maximum profit is capped at the higher strike, but your cost and risk are reduced by the premium received from selling the higher strike call.
How to Construct a Bull Call Spread
Setting up a bull call spread requires two simultaneous transactions:
- Buy to open: Purchase a call at a lower strike price (typically at-the-money or slightly out-of-the-money)
- Sell to open: Sell a call at a higher strike price (your target price)
- Both options must have the same expiration date
- The net cost is your maximum risk
Bull Call Spread Example
AAPL is trading at $175 and you are moderately bullish, expecting a move to $185.
- Buy the $175 call for $6.50
- Sell the $185 call for $2.50
- Net debit: $4.00 ($400 per contract)
Max profit: $6.00 ($600) - the width ($10) minus your cost ($4)
Max loss: $4.00 ($400) - your initial debit
Breakeven: $179 - lower strike plus net debit
Profit and Loss Scenarios
Understanding where your trade makes or loses money is crucial:
Maximum Profit
Maximum profit occurs when the stock closes at or above the higher strike price at expiration. The formula is:
- Max Profit = (Higher Strike - Lower Strike) - Net Debit Paid
Using our example: ($185 - $175) - $4.00 = $6.00 per share or $600 per contract.
Maximum Loss
Maximum loss occurs when the stock closes at or below the lower strike price at expiration. You lose your entire initial investment:
- Max Loss = Net Debit Paid
In our example, this is $4.00 per share or $400 per contract.
Breakeven Point
The breakeven is where you neither make nor lose money:
- Breakeven = Lower Strike + Net Debit Paid
In our example: $175 + $4.00 = $179. The stock needs to rise at least $4 for you to break even.
When to Use a Bull Call Spread
Bull call spreads work best in specific market conditions:
- Moderately bullish outlook: You expect the stock to rise but have a target price in mind
- Want defined risk: You want to limit your maximum loss
- Reduce cost: Buying a call outright is too expensive
- Lower IV exposure: High implied volatility makes long calls expensive, but the short call offsets some of that cost
- Earnings plays: When you expect a positive move but want to limit IV crush risk
Pro tip: Choose your short strike at a realistic target price. If you think AAPL can reach $185 but probably not $195, sell the $185 call rather than the $195 call. You will collect more premium and improve your risk/reward ratio.
Choosing Strike Prices
Strike selection significantly impacts your risk and reward:
Long Call Strike (Lower)
- ATM (at-the-money): Higher cost, higher delta, more responsive to price changes
- Slightly OTM: Lower cost, lower probability of profit, more leverage if right
Short Call Strike (Higher)
- Narrow width (1-2 strikes away): Lower cost, lower max profit, higher probability
- Wide width (3+ strikes away): Higher cost, higher max profit, lower probability
Strike Width Comparison
Stock at $100, both trades cost similar amounts:
Narrow spread ($100/$102.50):
- Cost: $1.20
- Max profit: $1.30
- Risk/reward: 1:1.08
Wide spread ($100/$110):
- Cost: $4.50
- Max profit: $5.50
- Risk/reward: 1:1.22
The wide spread offers better reward ratio but requires more capital and a bigger move.
Greeks and the Bull Call Spread
Understanding how Greeks affect your position helps with management:
- Delta: Positive. Position benefits from upward movement. Net delta is the difference between the two calls.
- Theta: Usually slightly negative. Time decay hurts debit spreads, but less than long calls alone.
- Vega: Can be positive or negative. Generally small because the long and short options offset each other.
- Gamma: Positive near the long strike, negative near the short strike.
Managing Your Bull Call Spread
Active management can improve your results:
Taking Profits Early
Consider closing when you have captured 50-75% of maximum profit. Holding for the last 25% often is not worth the time and risk.
Cutting Losses
Set a stop loss at 50% of your maximum loss. If you paid $4.00, consider closing if the spread falls to $2.00.
Rolling the Position
If the stock rallies quickly, you can roll up by closing your spread and opening a new one at higher strikes to capture more upside.
Track Your Spread Performance
Pro Trader Dashboard automatically tracks all your bull call spreads, calculates P/L, and shows your win rate over time.
Bull Call Spread vs Buying Calls
Comparing the two strategies:
- Cost: Bull call spread costs less
- Risk: Both have defined risk, but the spread risks less capital
- Profit potential: Long call has unlimited upside; spread is capped
- Breakeven: Spread has a lower breakeven point
- Time decay: Spread is less affected by theta
Common Mistakes to Avoid
- Setting unrealistic targets: Do not sell calls so far out that you rarely profit
- Ignoring commissions: Two-legged trades cost more; factor this into small trades
- Holding to expiration: Close early to avoid assignment risk and capture most of your profit
- Wrong time frame: Debit spreads need time to work but suffer from decay; 30-60 days is often optimal
Summary
The bull call spread is an excellent strategy for traders with a bullish outlook who want defined risk and lower capital requirements than buying calls outright. By selling a higher strike call, you reduce your cost and lower your breakeven point, though your profit is capped. Choose your strikes based on your target price, manage the position actively, and consider taking profits at 50-75% of maximum gain.
Learn more: vertical spreads, debit spreads, and bear put spreads.