Contents

Bull CALL Spread

Bull CALL spread is a bullish options strategy. It is also called as Long CALL spread. It involves buying a lower strike CALL and selling a higher strike CALL. It can be used when there is a moderate expectation of price increase.

Trade Set-Up

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Buy lower strike CALL

Naked Call 1-Finvezto

Sell higher strike CALL

short call-Finvezto

Bull Call Spread

bull spread-Finvezto

Entry Checklist

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Market Outlook
  • Bullish Outlook. Price should be trading above a true support zone
  • Volatility
  • Use this spread before earnings results are announced where the volatility is high.
  • Strike Price
  • Strike price should be below the support zone
  • Positional or Intraday?
  • This strategy is an earnings strategy. If there are company earnings results awaited and if you think the stock price might shoot up, then you can choose this strategy.
  • Risk Profile

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    Risk [Loss]
  • Maximum Risk is limited to the net debit paid. You cannot lose more.
  • Reward [Profit]
  • Maximum profit is limited to the difference in strike prices minus the net debit paid
  • Break Even Point
  • The strike price of the lower strike CALL plus the net debit paid
  • Options Greeks Impact

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    Time Decay Impact [Theta]
  • Time decay is helpful when the price shoots up as you predicted
  • Time decay is harmful when price is going down against your prediction
  • Volatility impact [Vega]
  • If volatility decreases as price shoots up, then it is helpful for the position
  • If volatility increases as price is falling, it is also helpful for the position
  • Price Impact [Delta]
  • As long as price remains above the support level identified and above the strike price of the higher strike CALL sold, you will profit.
  • Trade Management & Exit

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    Rolling & Adjustments
  • Remember that it is a net debit strategy and has to be used when you expect a moderate price increase.
  • If price is falling, then roll the position below the next support zone or create a bear call spread
  • Stop Loss
  • Stop Loss should be set in such a way that Risk is limited to 1-2% of your entire capital
  • Exit Conditions
  • Exit when price breaks below the support zone identified
  • Exit when your loss is 1-2% of your capital
  • Exit with stop loss after you lock in 50% of the maximum profit.
  • A Word of Caution

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    • Bull Call Spread can be used as a Earnings strategy.  Before earnings or result announcement the volatility will be high. So, you might not benefit by just buying a standalone CALL if you expect a price increase. You sell a higher strike CALL to counter the high volatility. Use this strategy when you expect a moderate rise in price, but not a huge increase. The upside is limited in this strategy.