Bull Call Spread

Step 1 — Choose the long call strike: Typically at-the-money or 1-2 strikes out-of-the-money. Closer to the money = higher probability of profit but higher cost.

Step 2 — Choose the short call strike: Usually 1-5 strikes above the long call. The distance determines the spread width and max profit potential. Place it near your target price or a resistance level.

Step 3 — Select expiration: 30-45 DTE gives enough time for the trade to work without excessive theta decay on the long call.

Step 4 — Calculate the economics: Max profit = spread width - net debit. Max loss = net debit. Breakeven = long strike + net debit.

Example walkthrough: AAPL at $195. Buy $195 call for $6.00, sell $205 call for $2.50. Net debit: $3.50 ($350 per contract). Max profit: $6.50 ($650 per contract). Max loss: $3.50. Breakeven: $198.50. Risk/reward ratio: roughly 1:1.86.

Lower cost: A bull call spread costs 30-60% less than buying the long call alone. That means less capital at risk if the trade fails.

Lower breakeven: Because the net debit is smaller, the stock does not need to move as far to reach breakeven.

High-IV environments: When implied volatility is elevated, single long calls are expensive and vulnerable to IV crush. A bull call spread partially hedges vega because the short call offsets some of the vega exposure from the long call.

When a long call is better: If you expect a very large move (20%+), a long call has unlimited upside while the bull call spread is capped. In low-IV environments where options are cheap, the cost reduction from selling the upper call may not be worth the capped profit.

Earnings plays: Bull call spreads before earnings reduce the IV crush damage because both legs lose IV simultaneously. However, the capped upside limits the payoff from a huge earnings beat.

Take profit at 50-75% of max: If the spread is worth $7.50 out of a possible $10 max, consider closing to lock in $7.50 rather than waiting for the last $2.50, which requires the stock to stay above the upper strike at expiration.

Cut losses at 50% of debit: If you paid $3.50 and the spread is now worth $1.75, the trade thesis has likely failed. Close to preserve capital.

Rolling up: If the stock rallies through your upper strike quickly, you can close the current spread and open a new one at higher strikes. This resets the position but locks in profit from the first spread.

Rolling out: If the trade needs more time, close the current spread and open a new one at a later expiration with the same strikes. This adds time but costs additional debit.

Do not hold to expiration: Close the spread 1-2 days before expiration to avoid pin risk and early assignment on the short call.