option-info and options-graphs sites:
Call , 1 strike down to ATM strike
Bull Call Spread, Bull Call Vertical
Outlook: Neutral to mildly bullish. The stock must remain near where
it is when you enter the position, or move higher, by expiration.
buy Call ITM and sell Call ATM.
when: stock stays put, or falls slightly, or rises.
Gain: difference in strike prices - initial debit.
when: stock falls too much.
Loss : limited to the initial debit.
Calculation: Long Call strike + initial debit.
compared to stock: limited risk, less capital needed, greater leverage,
can gain even if stock drops slightly.
compared to stock: gains are limited to the upside if stock rises
more than 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 ITM plus Short Call OTM. (A
Bull Call can be used if you are mildly bullish on a stock and also
want a little bit of downside protection.
Bull Call is probably the most similar pure options strategy to the
Covered Call, with the added advantage
of a known and limited risk, like a Collar.
The strategy retains some "downside protection" as well as
limited gains to the upside.
- The short
call(s) will limit gains to the upside, so you don't want to be "too"
- The best
time for entry of this Bull Call is when a stock has higher than normal
implied volatility, and you expect the stock price to stay at current
levels or drift higher. Entering when volatility is higher will reduce
the debit on entry, which lowers the breakeven and gives more downside
protection. If the stock price then stays reasonably steady or rises,
both the passage of time and the IV returning to normal (lower) levels
will benefit the strategy.
- The Bull
Put, -1 to ATM is a nearly identical trade, done with puts instead
of calls, and entered for a credit instead of a debit. One advantage
of the put strategy is that if the stock moves bullishly like you expect,
the puts will expire worthless and they won't need to be traded out
of, saving commission charges.
this is a neutral to bullish position, the trader is expecting the stock
to stay put or rise. If the stock falls instead, the trader would be
wise to cut his losses short. Using the example graph, if the stock
fell to about $47.50 at any time, the trade could be exited for a loss
of about $100. Just sitting and waiting could likely result in the maximum
loss of $341 - more than three times that much.
- If the
stock stays above the breakeven point, the trader should stick with
the position. As the option graph shows, just the passage of time is
a benefit at any stock price above breakeven.
- If the
stock rises over the strike you sold and you do not trade out of the
position before expiration, it is possible to receive an automatic exercise
on the long call, so you will buy the stock, and be assigned on the
short call, so you will sell the stock short. 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 when 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 everything out to the next month, and higher strike prices,
if you are still bullish on the stock.