the strike price of the long Call), a level where both the options expire worthless. On the other hand, the trader suffers maximum loss when the underlying price falls to the lower strike price (i.e. Beyond this, no matter how higher the underlying price goes, the trader does not earn anything more. Maximum profit potential is achieved when the underlying price rises to the higher strike price (i.e. Both profits and losses are limited under this strategy. Unlike a naked long Call, a Bull call Spread is a moderately bullish strategy. What differs is just the strike price and the premium. When entering into this strategy, both the options must have the same underlying and must be for the same expiry. Traditionally, the Call option that is bought is an ATM Call option and the Call option that is sold is an OTM Call option. Payoff of Long Call + Payoff of Short CallĪ Bull Call Spread is a strategy that involves buying a Call option that has a lower strike price and simultaneously selling a Call option that has a higher strike price. Strike price of long Call + Premium of long Call - Premium of short Call Premium of long Call - Premium of short Call
(Strike price of short Call - Strike price of long Call) - (Premium of long Call - Premium of short Call)