Call options

Bull call spread

It is also known as a debit call spread. This is one type of vertical spread. The name itself indicates that the trader invests part of their own capital into this spread. Textbooks describe a bull call spread as a combination created by simultaneously opening a long call position and a short call position on the same underlying stock, with the same expiration date but different strike prices. In this combination, the call option with the lower strike price is purchased, while the call option with the higher strike price is sold. This strategy is generally recommended when a trader expects the price of the underlying asset (the stock) to rise, but only moderately. In any case, it is a directional strategy with a bullish outlook. The advantage of this spread is that the maximum loss is limited. The disadvantage is that the maximum profit is also limited.

Bull Call Option Spread: Profit, Loss and Break-Even

The maximum profit is calculated using the following formula:

s(B) – s(A) – p(A) + p(B)

The maximum loss is calculated more simply:

p(B) – p(A)

where:
s = strike price,
p = option premium,
A = long position,
B = short position.

Bull Call Spread Example and Payoff

We would also like to point out that a bull call spread does not necessarily have to be opened simultaneously. In some cases, it can be built gradually by first opening a long call position (see Call Option), and then, after the price of the underlying asset has increased, selling a call option with a higher strike price. Although you are opening a short call position, no initial margin is required because a bull call spread works in the same way as a covered call strategy (see Covered Call), where the lower-strike long call covers the higher-strike short call. The only things to remember are that you cannot sell a call with a later expiration date, as it would no longer be considered a bull call spread, and you cannot sell more contracts than you hold in the long call position.

In addition, opening a bull call spread partially reduces a trader's risk during a sharp one-day increase in the stock's volatility. An example of such a situation occurred on July 14, 2026, in IBM. On that day, IBM shares fell by $77, or 26%. During such a sharp one-day decline, the stock's volatility, along with option premiums, increased disproportionately. The premium for a two-month at-the-money (ATM) call option reached $18.20, which was unusually expensive for an average-priced option.

Figure 1. Bull Call Spread payoff diagram showing maximum profit, maximum loss and break-even point at expiration.

 

The diagram above shows an example where the trader bought an at-the-money (ATM) call option with a strike price of 215, paying a premium of $18.20, and at the same time sold an out-of-the-money (OTM) call option with a strike price of 230, receiving a premium of $10.40. As a result, the trader's total investment in the spread was $7.80 ($18.20 – $10.40), which represents the maximum possible loss if the stock closes below 215 on the expiration date. If, on the same expiration date, the stock closes anywhere between 215 and 230, for example at 225, the short 230 call will expire worthless and the trader will keep the entire premium received. At the same time, the long 215 call will have an intrinsic value of $10.00 ($225 – $215).

The profit will therefore be:

225 – 215 – 18.20 + 10.40 = 2.20

If the stock closes at 240 on the expiration date, the trader will achieve the maximum profit on the spread:

230 – 215 – 18.20 + 10.40 = 7.20

It is important to understand that, as stock volatility returns to more typical levels, the short 230 call will partially offset the loss in value of the long 215 call if the stock price moves only slightly.

 However, in this particular example it would have been possible to completely protect yourself against the decline in stock volatility.

But that's another story.

Frequently Asked Questions

1.    You write that, in your example, the maximum profit is achieved when the stock price is above the strike price of the short call. But in that case, the buyer of the option may exercise it and require delivery of the shares. What should I do if I neither own the shares nor have enough money to buy them?

 

Let's look at this example using a single contract.

 The trader opened a bull call spread:

bought a 215 strike Call;

sold a 230 strike Call.

Before expiration, the stock price rose to $240, and the buyer of the short call decided not to wait until expiration and exercised the option.

 The next day, the trader logs into the trading platform and sees something unexpected. The short call is gone. In its place, the account now shows a short position of 100 shares. At the same time, $23,000 has been credited to the account because the shares were sold at the strike price of $230.

    However, the long 215 Call has not disappeared. It is still in the account and continues to give the trader the right to buy the same 100 shares at $215.

   At first glance, the situation may seem unpleasant. It appears that the trader is now short 100 shares while the stock is already trading at $240. But if we look more closely, it becomes clear that there is no real problem.

 

Figure 2. Early assignment on a bull call spread.

 

The trader still has the right to buy 100 shares at $215. This requires $21,500, but those funds are already in the account—they were received when the shares were sold at the $230 strike price. By exercising the long call, the trader purchases 100 shares at $215 and immediately uses them to close the short stock position. At that point, the entire process is complete.

This is why the early assignment of the short call does not turn the position into one with unlimited risk. The right to purchase the shares at the lower strike price continues to protect the trader even after the short call has been exercised by the buyer. Therefore, the strategy remains a limited-risk strategy even in the event of early assignment. Only the composition of the account changes; the economic nature of the overall position does not.

Figure 3. Cash flows after early assignment of a bull call spread.

 

2.    As I understand it, the broker will not force me to immediately close the short stock position. Does this combination—a short stock position created at $230 together with a long 215 Call—create any additional risk for me?

Until the option expires, you always have the right to buy the shares at $215, thereby closing the short stock position regardless of whether the stock is trading at $240, $280, $300, or even higher. However, once the short Call has been assigned early, the original bull call spread effectively ceases to exist. Instead, the account now contains a short stock position and a long Call. This is a different position that opens up new opportunities for managing the trade.

Theoretically, this situation can provide the trader with a much greater profit opportunity if the stock price falls sharply. For example, imagine the stock declines to $150. The long 215 Call will expire worthless, but you will be able to close the short stock position by buying back the shares for $15,000. Your profit will then be $7,280 ($23,000 – $15,000 – $720), which is significantly higher than the maximum profit originally available from the bull call spread.