Definition
Bull Call Spread
A bull call spread buys a lower-strike call and sells a higher-strike call to bet on a moderate rise at lower cost.
You buy an at-the-money or in-the-money call and simultaneously sell a higher out-of-the-money call. The premium you collect on the sold call reduces your net cost, but it also caps your maximum profit at the higher strike. It is a defined-risk, defined-reward bullish trade.
On NSE Nifty or Bank Nifty, traders use bull call spreads when they expect a limited up-move and want to cut the cost — and the theta bleed — of buying a naked call. The maximum loss is the net premium paid; the maximum gain is the gap between strikes minus that premium.
Related terms
- Bear Put SpreadA bear put spread buys a higher-strike put and sells a lower-strike put to profit from a moderate fall at lower cost.
- Bull Put SpreadA bull put spread sells a higher-strike put and buys a lower-strike put to earn premium with a mildly bullish view.
- Butterfly SpreadA butterfly spread uses three strikes to bet that the underlying will finish near the middle strike, at low cost and defined risk.
- Call OptionA call option gives its buyer the right, but not the obligation, to buy an asset at a fixed strike price before expiry — buyers profit when the price rises.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.