When you are bullish on a stock, you have several options strategies to choose from. Two of the most common are buying a simple call option (long call) or creating a bull call spread. While both profit when the stock rises, they have very different risk-reward characteristics that make each suitable for different situations.
Understanding the Long Call
A long call is the simplest bullish options strategy. You buy a call option, giving you the right to purchase shares at the strike price. Your risk is limited to the premium paid, while your profit potential is theoretically unlimited.
Long call: Pay premium for unlimited upside potential. You need the stock to move above your breakeven (strike + premium) to profit.
Example: Long Call
Stock XYZ is at $100. You buy a call option:
- Buy $105 call for $3.00
- Cost: $300 (maximum risk)
- Breakeven: $108 ($105 + $3)
- Profit if stock goes to $120: $1,200 ($15 intrinsic - $3 cost = $12 x 100)
- Max loss: $300 (if stock stays below $105)
Understanding the Bull Call Spread
A bull call spread (also called a call debit spread) involves buying a call and simultaneously selling a higher strike call. This reduces your cost but also caps your profit potential.
Bull call spread: Reduced cost, reduced risk, but capped profit potential. The short call you sell finances part of the long call you buy.
Example: Bull Call Spread
Stock XYZ is at $100. You create a call spread:
- Buy $105 call for $3.00
- Sell $110 call for $1.50
- Net cost: $1.50 ($150 maximum risk)
- Breakeven: $106.50 ($105 + $1.50)
- Max profit: $3.50 ($350) - achieved if stock goes above $110
- Max loss: $150 (if stock stays below $105)
Side-by-Side Comparison
| Feature | Long Call | Call Spread |
|---|---|---|
| Cost (Risk) | $300 | $150 |
| Max Profit | Unlimited | $350 |
| Breakeven | $108 | $106.50 |
| Theta Impact | Negative (hurts) | Less negative |
| Vega Impact | Positive | Less positive |
| Best For | Big moves | Moderate moves |
Time Decay Comparison
Time decay (theta) affects these strategies differently:
Long Call Theta
A long call has negative theta, meaning it loses value every day. The longer you hold it, the more time value erodes. This is your biggest enemy as a call buyer.
Call Spread Theta
A call spread has partially offsetting theta. The short call you sold also has theta, and as it decays, some of that benefit comes to you. Your net theta is still negative but smaller than a long call alone.
Theta advantage: If you expect a slow move higher, the call spread loses less to time decay while you wait.
Volatility Comparison
Changes in implied volatility (IV) also affect these strategies differently:
Long Call Vega
A long call has positive vega. If IV increases, your option gains value. If IV decreases (volatility crush), your option loses value even if the stock does not move.
Call Spread Vega
A call spread has reduced vega because the short call partially offsets the long call. You are less affected by IV changes, both positive and negative.
When to Use a Long Call
A long call is the better choice when:
- You expect a large, fast move: No cap on profits means you capture all the upside
- Implied volatility is low: Options are cheap and you want vega exposure
- You expect IV to increase: The long call benefits from volatility expansion
- There is a potential catalyst: Earnings, FDA approval, or other events could drive a big move
- You have conviction: The reduced cost of a spread is not worth capping your profit
When to Use a Call Spread
A call spread is the better choice when:
- You expect a moderate move: Stock will rise but not dramatically
- Implied volatility is high: Options are expensive, so selling one reduces cost
- You expect IV to decrease: The spread protects against volatility crush
- You want to reduce cost: Less capital at risk means better risk management
- You have a target price: Place the short strike at your expected move target
- Time may pass slowly: Less theta decay while waiting for the move
Return on Investment Comparison
Let us compare the returns at different stock prices:
If Stock Goes to $115
- Long call profit: $115 - $105 - $3 = $7 x 100 = $700 (233% return on $300)
- Spread profit: $350 max (233% return on $150)
If Stock Goes to $120
- Long call profit: $120 - $105 - $3 = $12 x 100 = $1,200 (400% return)
- Spread profit: Still $350 max (233% return)
If Stock Goes to $107
- Long call profit: $107 - $105 - $3 = -$1 x 100 = -$100 loss (breakeven not reached)
- Spread profit: $107 - $105 - $1.50 = $0.50 x 100 = $50 profit
Key insight: The spread has a lower breakeven point, so it starts profiting sooner. But the long call has unlimited upside, so it can vastly outperform if the stock makes a huge move.
Converting Between Strategies
You do not have to choose at the outset. Many traders start with one strategy and convert to the other:
Long Call to Spread
If you own a long call that has become profitable, you can sell a higher strike call to lock in some gains. This converts your long call into a call spread and removes some risk.
Spread to Long Call
If your spread is profitable and you think the stock will continue higher, you can buy back the short call. This converts your spread back to a long call with unlimited upside.
Track Your Bullish Trades
Pro Trader Dashboard tracks long calls, spreads, and all your options positions. See which strategies perform best for your trading style.
Summary
Long calls and call spreads are both valid bullish strategies with different tradeoffs. Long calls offer unlimited profit potential but cost more and suffer more from time decay. Call spreads cost less and have a lower breakeven but cap your profits. Choose long calls when you expect big moves and volatility expansion. Choose spreads when you expect moderate moves, want to reduce cost, or are trading in high IV environments. Understanding both strategies gives you flexibility to match your approach to market conditions.
Learn more about bullish strategies in our guides on buying vs selling options and credit spreads vs debit spreads.