Investment Type: Credit
Strike Prices: ITM/ATM for bought leg, OTM for sold leg
Expiration Month: Same expiration month between sold leg and bought leg, preferably current month.
Composition: Buy lower strike call + Sell higher strike call
| Bull Call Spread Profile Chart | ||
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Bull Call Spread is a cheaper way to play Buy Call strategy with more probability for profit. However, the reward will no longer be unlimited. Firstly, we buy ITM/ATM Call, then we sell OTM Call that serves as a limit to our profit.
The only way to make more money with Bull Call Spread is to increase the number of contracts as the reward is severely limited and mostly we have to wait near or until expiration date to be able to achieve maximum profit. Depending on the brokerage house that we use, we are going to spend more money on commission and slippage for spread strategy rather than a simple Buy Call or Buy Put strategy.
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Entry:
Investment @ Entry = (Premium of Bought Leg x No of Contracts x 100 Shares) + (Premium of Sold Leg x No of Contracts x 100 Shares) = $6,640 + ($1,660) = $4,980
Breakeven Point = Strike Price of Bought Leg + Net Debit = $35.00 + $0.60 = $35.60
Exit: Best Case Scenario:
Profit @ Exit = (Premium of Bought Leg x No of Contracts x 100 Shares) + (Premium of Sold Leg x No of Contracts x 100 Shares) – Investment @ Entry = $ 20,750 + $0 - $4,980 = $15,770
Return of Investment = Profit @ Exit / Investment @ Entry = 317%
Worst Case Scenario : Investment @ Entry
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