All option guides
What is a bull call spread?
Understand the defined debit, capped upside, and expiration tradeoffs of buying one call and selling another
Prepared by Mark · Primary sources below
Direct answer
A bull call spread buys a call and sells another call with the same expiration at a higher strike. The short call helps reduce the upfront debit, but it also caps the position's maximum gain. At expiration, the net debit is generally the maximum loss and the difference between strikes, less that debit, is the maximum gain
The short call funds part of the long call
The position pairs a purchased lower-strike call with a sold higher-strike call. Premium received from the short call offsets part of the cost of the long call, so the spread generally costs less than buying the lower-strike call alone
Both sides of the payoff are capped
If the stock is at or below the long-call strike at expiration, both calls can expire without value and the debit paid is lost. If the stock is at or above the short-call strike, the spread reaches its maximum expiration value, so gains do not keep increasing with the stock
Time, volatility, and expiration still matter
The two calls can offset some sensitivity to time decay and implied volatility, but not perfectly. As expiration approaches, a stock price near either strike can create additional exercise, assignment, and after-hours considerations that depend on the account and contracts involved
Sources and further reading
Start from the contract you are considering
Choose an option and target so the analysis can separate the stock, time, and volatility conditions behind the outcome
Analyze my option