Bull Call Spread: how the position works

A long call with a higher-strike call sold against it. The short leg pays for part of the long one, which lowers the breakeven and the cost, and in exchange it caps the profit at the higher strike. It is the standard answer to "I think this rises, but not indefinitely, and I do not want to pay full premium to find out".

Market view: Bullish — moderate, defined range
Opened for: Debit
Maximum profit: (K₂ − K₁) − net debit. Reached at or above the upper strike at expiry.
Maximum loss: The net debit paid. Reached at or below the lower strike at expiry.
Breakeven: K₁ + net debit, at expiry.

How it is built

Buy 1 call at the lower strike K₁
Sell 1 call at the higher strike K₂, same expiry

All figures above are quoted per share and settle at expiry. A standard equity option covers 100 shares, so multiply by 100 for a single contract.

Before expiry: the Greeks

Net long delta, but far smaller than the outright call — the short leg cancels part of it, and the cancellation grows as the underlying approaches the upper strike. Vega is close to flat, since the two legs have opposing exposures, so this structure is much less sensitive to an implied-volatility collapse than a naked long call. Theta is mildly negative while the underlying sits below the long strike and turns positive once the position is deep in the money, because then it is the short leg that still has time value to lose.

When to use it

When you have a target price rather than an open-ended view. Setting the short strike at your target is the point of the structure: you are selling the part of the distribution you do not believe in and using the proceeds to cheapen the part you do. It is also the better expression when implied volatility is high, because you are buying and selling volatility at once.

What goes wrong

The profit is capped, and a large favourable move pays no more than a small one that clears the upper strike. Being spectacularly right earns the same as being adequately right.
Early assignment on the short leg, most often just before an ex-dividend date when the short call is in the money. The long leg still covers you, but you may be left short stock over a weekend.
Two legs means two spreads to cross, on entry and again on exit. On a narrow spread the round-trip friction can be a meaningful share of the maximum profit.

A worked example

SPY at 580. Buy the 580 call and sell the 600 call, 45 days out, for a net 7.25 debit.

Net debit paid: $7.25 per share — $725 for one contract
Width of the spread: $20.00 (600 − 580)
Maximum profit: $1,275 ((20 − 7.25) × 100), at or above 600
Maximum loss: $725, at or below 580
Breakeven at expiry: $587.25 (580 + 7.25)

Commissions, exchange fees, financing and the bid/ask spread are excluded. On a multi-leg position the spread is usually the largest of these.

Common questions

How wide should the spread be?

Width sets the maximum profit and the cost together. A wider spread costs more and behaves more like an outright call; a narrower one is cheaper with a lower ceiling. Choose the short strike from where you think the underlying actually stops, not from the payoff picture.

What happens if both legs finish in the money?

They offset. The long call is exercised and the short is assigned, netting the full width of the spread, which is the maximum profit. Most brokers handle this automatically, but check the assignment policy — some will not auto-exercise if the account cannot support the intermediate stock position.

Related strategies

Educational only. This page explains how a structure behaves; it is not a recommendation to trade it. Options and futures carry substantial risk, and short and leveraged positions can lose more than the amount originally invested.