A bull call spread is what you use when you think a stock will go up, but not to the moon. You buy a call, then sell a higher-strike call against it to bring the cost down. In exchange, you give up any gains above that higher strike.
How it’s built
Two calls on the same stock, with the same expiration:
- Buy a call at a lower strike, usually near the current price.
- Sell a call at a higher strike, roughly where you think the stock will top out.
The call you sell pays for part of the call you buy, so the trade costs less than a plain long call. That net cost is called the debit.
Max profit, max loss and break-even
| Bull call spread | |
|---|---|
| Max profit | (Higher strike − lower strike) − net debit, if the stock finishes at or above the higher strike |
| Max loss | The net debit, if the stock finishes at or below the lower strike |
| Break-even at expiration | Lower strike + net debit |
Worked example
Tesla ($TSLA) is at $250, and you expect a move up, but probably not past $270. You buy the $250 call for $10 and sell the $270 call for $5. Net cost: $5 a share, or $500.
- Break-even: $250 + $5 = $255.
- TSLA at $270 or higher: the spread is worth its full $20 width. Profit: $20 − $5 = $15 a share, or $1,500. That’s the most it can make, even if Tesla goes to $400.
- TSLA at $250 or lower: both calls expire worthless and you lose the $500.
So you’re risking $500 to make up to $1,500.
A smaller one: Apple ($AAPL) at $150, and you think it gets to $160 within a month. Buy the $150 call for $5, sell the $160 call for $2. Net cost $3 ($300). At $160 or above, you make the maximum $7 a share ($700).
When it makes sense
- You’re bullish, but expect a moderate rise, not a breakout.
- You want to cut the cost of buying calls outright.
- You’re fine capping your upside in exchange for a cheaper, defined-risk trade.
What to watch out for
- The cap. If the stock blows through your short strike, you don’t get any of the extra move.
- Time decay. It hurts less than on a single long call, because the call you sold decays too, but the spread still needs the stock to move before expiration.
- The break-even. The stock has to get above the lower strike plus the debit before you make money.
Tips
- Set the short strike at your target. Put the higher strike where you realistically think the stock can get to, not where you hope it goes.
- Give it enough time. Spreads are cheaper than single calls, so buying a few extra weeks costs less than you’d think.
- Take profits early. If the stock hits your target well before expiration, closing the spread for most of its max value is usually smarter than waiting for the last few dollars.
You can chart the payoff for your own strikes with the options profit calculator.