Call is a bullish vertical option strategy where the maximum possible
gain is about equal to the maximum possible loss.
option-info and options-graphs sites:
Call , (1
strike down to 1 strike up)
Bull Call Spread, Bull Call Vertical
Outlook: Bullish. The stock must rise to show any significant gain.
buy Call ITM and sell Call OTM, same distance from current stock
when: stock rises.
Gain: difference in strike prices - initial debit.
when: stock falls, or does not rise.
Loss : limited to the initial debit.
Calculation: Long Call strike + initial debit.
compared to stock: limited risk, less capital needed, greater leverage.
compared to stock: gains are limited to the upside if stock rises
beyond the sold strike, no dividends.
after entry, increasing implied volatility is positive if the stock
falls, but negative if the stock rises.
after entry, the passage of time is positive if the stock rises,
but negative if the stock falls.
Requirement: None. The initial debit must be paid in full.
see the Vertical Spread Strategies page and
Bull Call debit spread
Equivalent: Long Stock plus Long Put at the lower strike plus Short
Call at the higher strike. (A "collar".)
Bull Call can be used if you are bullish on a stock, but want to have
a better chance of a gain than buying an ATM Long Call. The ATM Long
Call must rise by the amount of the debit, this Bull Call has a gain
with any rise in the stock price.
- The short
call(s) will limit gains to the upside, so you don't want to be "too"
- Over the
range of strike prices used, the position will gain or lose a dollar
amount nearly the same as holding a stock position of the equivalent
number of shares. This significantly increases your leverage on the
this is a bullish position, the trader is expecting the stock to rise.
If the stock falls instead, the trader would be wise to cut his losses
short. Using the example graph, if the stock drops to about $47.50 at
any time, the loss would be about $200, and it is probably best to take
it. Just sitting and waiting could likely result in the maximum loss
of more than twice that amount.
- If the
stock rises most of the way to the sold strike, the trader should stick
with the position. As the option graph shows, just the passage of time
is a benefit at any stock price near the sold strike.
- If the
stock rises over the strike you sold and you do not trade out of the
position before expiration, it is possible to have an automatic exercise
on the long call, so you will buy the stock at the lower strike, and
also have an automatic exercise on the short call, so you will sell
the stock short at the higher strike. See the Rules,
Tips, & Techniques page for more.
- It is
not usually recommended to adjust one part of a Bull Call. If you take
a trading profit on the short calls if the stock drops for instance,
you are actually increasing your maximum risk. You might think you will
sell the calls again the next time the stock goes up, but what if it
- It is
possible to roll the entire bull call to lower strike prices if the
stock drops, but that really amounts to closing one trade at a loss
and opening another trade in hopes of a gain. Plus, the stock has not
behaved bullishly yet you are taking a second bullish position.
- If a bull
call works out better than you expected and you want to stick with the
stock, you can buy back the short calls, and exercise the long calls,
so that you end up with just stock, with all the inherent risks and
- Or if
the stock rises to near the sold call strike with expiration near and
you have made 80% or so of the total possible on the short calls, you
can roll the position out to the next month, using higher strike prices,
if you are still bullish on the stock.