🐂Bull Call Spread

Call Debit Spread

A Bull Call Spread is an options strategy where one simultaneously buys a call (long) and sells a call (short) with the same expiration date. The long call strike is also below the short call strike.

• Different strike price and same expiration date

• Directional strategy

• Typically consists of simultaneously buying a call with a lower strike price and one short call with a higher strike price.

A Bull Call Spread typically consists of writing a call and put option. The resulting net premium of this option will be positive as it represents a promise to a range of positive payoffs in the future; therefore, funds are initially debited to (removed from) the options trader's account when the position is entered.

For this example, we are using an ITM call.

Example: Suppose the current price of Bitcoin is $20,500. We want to buy a long call with a strike price of $16,000 and an expiration date of Dec 30, 2022.

Cost of premium to buy: - $4,500

However, we want to minimize uncapped losses, so we simultaneously sell a put with a strike price of $21,000 and the same expiration date as the long call.

Premium earned: $1,500

Net premium: -$3,000 is the amount as a trader that you would pay to put on this particular option strategy.

Breakeven point = $18,300

This means that if the price of the underlying token is $19,000, you would break even.

Potential Maximum Profit

If the price is $21,000 or above, you get a maximum profit of $1,500

Potential Maximum Loss

If the price is $16,000 or below, you lose your entire initial net premium paid -$4,500.

To understand some of the tradeoffs of a debit call spread, it’s important to think about the case when you just bought the $16,000 call and did not add a short call. From the PnL diagram, all upside above the point at which the curves intersect is reaped by the call but not the bull call spread. However, there is a bigger potential loss on the downside. Thus, you have to give up potential upside to reduce potential losses.