Bull Call Spread
Buy 1 ITM Call / Sell 1 OTM Call
The Bull Call Spread is an option strategy with both limited upside profit potential and limited downside risk of loss. Buyers of Bull Call Spreads believe the underlying equity will rise in price before option expiration.
Compared to buying a Long Call, Bull Call Spreads can be significantly less expensive and an attractive choice during periods of high volatility when options are priced at a premium.
Consider the following hypothetical example for a stock trading at $27.52.
A $2 bull call spread (buying the $27 call and selling the $29 call) can be purchased for $0.81 for the current month. A profit is realized if the stock trades above $27.81 at option expiration; profit potential is limited to the spread price less the premium paid ($119.00). Below $27.00, a maximum loss is realized equal to the option spread price paid.
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The opposite of this strategy is the Bear Put Spread.
