Option Chain Strategy - BULL CALL SPREAD explained with example

Strategy	Market View	Strategy Level	Risk	Reward	Leg
Bull Call Spread	Bullish	Intermediate	Limited	Limited	2

Introduction

Bull Call Spread is a bullish strategy that is executed by buying a call and selling a higher strike to fund it. It is a net debit strategy with limited risk to limited rewards.

Payoff Graph - Bull Call Spread

When to execute?

A bull Call spread is executed when we have a bullish outlook in Stock/Index. Instead of buying a naked call with higher outflow, one sells higher strike Call to partially fund the outflow resulting in the hedging strategy

Trade

Buy 1 lot ATM call & Sell 1 lot OTM call

Maximum Profit

Maximum reward is limited to the difference in strike less net outflow. Maximum profit arises if the stock closes at or above the higher strike. Identifying a clear uptrend is essential for the strategy.

Maximum Loss

Maximum risk is limited to the difference in the cost of Long and Short Call. Breakeven for the strategy would be lower strike + net outflow

Advantages

• Helps to participate in a bullish stock with relatively low cost
• Reduced risk, cost, and breakeven point for a medium to long term bullish trade as compared to buying a call alone
• Capped downside (although still 100% of the outlay)

Disadvantages

• Capped profit if the stock closes above short call
• Identifying a clear area of resistance and selection of strike becomes very important