Bull Call Spread - Limited Risk, Limited Reward

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Reference

A bull call spread is a vertical spread where you buy a call at a lower strike and sell a call at a higher strike, both expiring the same month.

How It Works

Apple at $150:

Buy $145 call for $8
Sell $155 call for $3
Net cost: $5 per share ($500 per contract)

Maximum profit: $10 - $5 = $5 per share ($500) if stock closes above $155. Maximum loss: $5 per share ($500) if stock closes below $145. Breakeven: $150 ($145 + $5 cost).

Why Use It

Limited risk (you know max loss upfront)
Lower cost than buying calls alone
Higher probability than buying calls alone
Defined profit target

Risk Profile

Maximum Profit: Width of strikes minus net cost

Maximum Loss: Net cost paid

Profitable Zone: Between breakeven and max profit at expiration

When to Use

Use when you're moderately bullish but want to reduce cost and risk. The sold call offsets the bought call premium.

Adjustments

Close early at 50% max profit
Roll up if stock moves against you
Let expire if OTM at expiration