What Is A Bull Call Spread?

They can be created with either all calls or all puts, and can be bullish or bearish. The bull call spread, as with any option spread, can be executed as a “unit” in one single transaction, but not as separate buy and sell transactions.

The strategy uses two call options to create a range consisting of a lower strike price and an upper strike price. The bullish call spread helps to limit losses of owning stock, but it also caps the gains.

Early Assignment Risk

For example the outlook on a particular stock could be ‘moderately bullish’ or ‘moderately bearish’. A stock option gives an investor the right, but not the obligation, to buy or sell a stock at an agreed-upon price and date. The bull call spread consists of the following steps involving two call options. Profit from a gain in the underlying stock’s price without the up-front capital outlay and downside risk of outright stock ownership. For example, if you are of the view that Nifty will rise moderately in near future then you can Buy NIFTY Call Option at ITM and Sell NIFTY 50 Call Option at OTM. You will earn massively when both of your Options are exercised and incur huge losses when both Options are not exercised. For example, if you are of the view that NIFTY will rise moderately in near future then you can Buy NIFTY Call Option at ITM and Sell Nifty Call Option at OTM.

The strategy looks to take advantage of a price increase from the underlying asset before bull call spread strategy expiration. Increased implied volatility may also benefit the bull call debit spread.

The Bull Call Spread Options Trading Strategy

The maximum profit from the strategy is limited to the differences between the strike prices minus the net spread . The strategy breaks even at the strike price of the long call plus the net premium paid. For the long call, the options trader pays a premium which is the maximum loss from the https://www.bigshotrading.info/ long call. Bull Call Spread is an options trading strategy that involves the purchase of two call options with the same expiration and different strike prices. In the strategy, the trader buys one call option with a lower strike price and sells another call option with a higher strike price.

American options can be exercised on any business day, and the holder of a short stock options position has no control over when they will be required to fulfill the obligation. Therefore, the risk of early assignment must be considered when entering positions involving short options. Early assignment of stock options is generally related to dividends. Bull and bear spreads are tools used by commodity traders to express a view on either outright price or supply and demand within specific markets. There are two types of options used in bull and bear spreads—a call option, or the option to buy; and a put option, or an option to sell.