The bull call spread is a bullish strategy used by traders who want to capitalize on an increase in the price of the underlying stock. The bull vertical consists of buying a lower strike call and selling a higher strike call. The call options will have the same expiration. The total cost of the spread is the debit, or premium paid, which is the max risk. The max profit potential is the difference between the strike prices minus the debit.
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Some traders may think being long call options is the only way to profit from having a bullish market opinion. However, in the bull call spread, the price paid for the call with the lower strike price is partially offset by the premium received by selling the call with the higher strike price. Thus, the trader's investment in the long call, and the risk of losing the entire debit for it, is reduced. The reduced debit is offset by the limit on the max profit potential.
The break-even point for the bull call spread is the strike price of the purchased call plus the debit. The change in volatility and passage of time both have varying effects depending on if the calls are in or out of the money.
(Chart courtesy of Option Oracle)
This is an example of a Nike July $70/$75 bull call spread. In this call spread, the trader is long the July $70 strike at $0.32 and short the July $75 call at $0.03 for a total debit of $0.29. The max risk is $0.29 and the max profit potential is $4.71. The break-even price level at expiration is $70.29.