Bull Call Spread - Strategies, Example, Advantages & Risks

A bull call spread is a simple options plan for a mild up move. You buy one call at a lower strike and sell one call at a higher strike, both with the same expiry and on the same stockor index. The call you buy gives you upside if the price rises. The call you sell helps reduce the cost. Because of the sold call, your profit is capped. The good part is that your loss is also capped and smaller than buying a lone call. This makes the plan friendly for beginners who want limited risk and limited cost.

Why use it? Sometimes you expect the price to go up, but not too much. A bull call spread fits that view. It can also help when option premiums are high, because the sold call brings in some premium to cut the bill. In this easy guide, you will learn the meaning, step-by-step setup, payoff and breakeven math, how to choose strikes and expiry, a clear number example, when to use the spread, tips to manage, advantages, risks, common mistakes, a quick checklist, and helpful FAQs. Keep trade size small while you learn and stick to liquid contracts.

What is a bull call spread in simple words

You buy one lower strike call. You sell one higher strike call. Both have the same expiry. You pay a small net premium because what you pay for the lower strike is more than what you receive for the higher strike. If price rises above the lower strike, the spread can gain. Profit stops growing once price goes above the higher strike. If price falls, your loss is limited to the net premium you paid.

How it works step by step

1. Pick a liquid stock or index and a single expiry.
2. Choose a lower strike call to buy.
3. Choose a higher strike call to sell.
4. Place both orders as one spread if your platform allows.
5. Note the net premium paid, the two strikes, and the lot size.
6. Hold to your plan or exit early if your target or time stop hits.

Payoff and breakeven math in easy form

Let K1 be the lower strike and K2 be the higher strike. Let you pay C1 for the K1 call and receive C2 for the K2 call.

Net premium paid T = C1 − C2
Maximum profit = (K2 − K1) − T
Maximum loss = T
Breakeven at expiry = K1 + T

Above K2, the spread value is fixed at K2 − K1, so profit is capped. Below K1, both calls expire worthless, so loss is the net premium T.

How to choose strikes and expiry

Pick the lower strike close to the money or just in the money so the long call has some real value. Set the higher strike at a level you think price can reach by expiry. If you set K2 too close, profit is small but easier to reach. If you set K2 too far, cost may be low but price may not reach, so profit may be low too. Balance both. For expiry, choose enough time for your view to play out, but not too long that time value makes the spread costly. Many start with the near or next monthly expiry if the view is near term. Always check liquidityand the bid ask spreads for both strikes. If spreads are wide, fills can be poor. Use limit orders. Make sure both legs are in the same series and same quantity.

Number example you can copy

Spot = 1,000
Buy 1,000 call for 28 (K1)
Sell 1,050 call for 12 (K2)
Net premium T = 28 − 12 = 16

Breakeven = 1,000 + 16 = 1,016
Maximum profit = (1,050 − 1,000) − 16 = 34 per unit
Maximum loss = 16 per unit

Expiry cases
At 1,040: Spread value = 40. Profit = 40 − 16 = 24.
At 1,070: Spread value is capped at 50. Profit = 50 − 16 = 34 (max).
At 995: Both calls expire worthless. Loss = 16.

Lesson
You need a move above 1,016 to start making money at expiry. Profit stops growing beyond 1,050.

When to use a bull call spread

You expect a moderate rise, not a big rally
You want lower cost than buying a single call
You like fixed and limited risk
Option premiums are rich and selling the higher strike helps reduce cost
The stock or index is liquid and has tight option spreads

How to manage the trade

Set a profit target near the midpoint between breakeven and the cap, or exit early if price stalls.
Use a time stop. If nothing happens by a set date, close to save time value.
If price rushes near the higher strike early, consider booking most profits instead of hoping for more.
Avoid adding to the spread. It is already a defined-risk trade.

Advantages Of Bull Call Spread

• Lower entry cost than a lone call
• Limited and known maximum loss
• Clear breakeven and profit cap
• Can benefit even with a mild up move
• Works well when implied volatility is high

Risks and limits you should know

Profit is capped at the higher strike
If price rises slowly and ends below breakeven, you lose the net premium
Wide bid ask spreads can eat gains on entry and exit
If volatilitydrops hard, the spread value can sag before price moves
Early exit may return less than the full theoretical value because both legs move

Common mistakes and easy fixes

• Setting the higher strike too far away.
• Fix by choosing a realistic target level.
  Using illiquid strikes with wide spreads.
• Fix by sticking to liquid contracts and using limit orders.
  Holding to expiry without a plan.
• Fix by setting time and profit stops.
  Oversizing because risk looks capped.
• Fix by keeping risk per trade small in cash terms.
• Forgetting lot size math. Fix by checking total rupee risk and total max gain before entry.

Also read: How to use Bull Call Spreads and Bear Put Spreads