What is Bull Call Spread? | Bull Call Spread Option strategy

                •  Bull Call Spread

•    Bull Call Spread is a strategy that must be devised when the investor is moderately bullish on the market direction going up in the short-term.

•    A Bull Call Spread is formed by buying an “In-the-Money Call Option” (lower strike) and selling an “Out-of-the-Money Call Option” (higher strike). Both the call options must have the same underlying security and expiration month.

•    The net effect of the strategy is to bring down the cost and breakeven on a Buy Call (Long Call) strategy.

•   The investor will benefit if the underlying Stock/Index rallies. However, the risk is limited on the downside if the underlying Stock/Index corrects.

•        Investor view: Moderately bullish on the Stock/ Index.

•        Risk: Limited.

•        Reward: Limited to the net premium paid.

•        Breakeven: Strike price of Buy Call + net premium paid.

•        Illustration

•        Eg. 

     Nifty is currently trading @ 15500. The investor is expecting the markets to rise from these levels. So buying

•    Call Option of Nifty having Strike 15400 @ premium 150 and selling Call Option of Nifty having Strike 15600 @ premium 50 will help investor benefit if Nifty goes above 15500.

                                        Payoff Schedule

In the above chart, the breakeven happens the moment Nifty crosses 15500, and risk is limited to a maximum of 7500 (calculated as Lot size * Premium Paid).