Explore

Sign ine-paper
Monday, 5 September 2022
Upto 20% off* on premium plans  Subscribe Now
















 














 Home
 Latest
 Markets
 Premium
 For You
 Watchlist
Market DashboardMint SnapViewPhotosPlain FactsLong StoryMark To
MarketPrimerVideosMoneyStart-upsNewsMutual
FundsCryptocurrencyMarketsBankingPodcastsCoronavirusTechnology
Home / Markets / Stock Markets /  What is bull call spread? MintGenie explains
What is bull call spread? MintGenie explains

The bull figure outside the Bombay Stock Exchange in Mumbai, India, on tuesday 17th May
2022. Photographer: Samyukta Lakshmi/ BloombergM.R.�Kumar, chairman of Life
Insurance Corp. of India (LIC), center, at LIC's listing ceremony at the Bombay Stock
Exchange (BSE) in Mumbai, India, on Tuesday, May 17, 2022. State-run insurer Life
Insurance Corporation of India plunged early in its Mumbai trading debut after
a�record�initial public offering that priced at the top of the range and was oversubscribed
nearly three times. Photographer: Samyukta Lakshmi/Bloomberg (Bloomberg)2 min
read . Updated: 07 Jul 2022, 11:06 AM ISTMintGenie Team
 When stock prices are expected to rise moderately, options traders follow a hedging
strategy called bull call spread. In this, two call options at different strike rates are
bought as well as sold. Read further to understand the concept in detail

Listen to this article

A call option is a derivative product that gives the buyer an option, but not an
obligation, to buy a security from a seller at a predetermined price before the
expiry of contract. To maximise the profits, some traders buy these call options in
strategic proportions under a well-managed plan called options trading strategy.
A ‘bull call spread’ is also an options trading strategy that helps the trader to
benefit from a stock's moderate increase in price. The strategy makes use of two
call options to make a range comprising a lower strike price and an upper strike
price. This helps to cut down on cost incurred in owing the stock.
Essentially, there are three steps involved in the bull call spread:
A. A trader first zeroes in on a security that is likely to witness a moderate increase
in price over a period of time.
B. Then the trader will buy the call option with a strike price higher than the
market price. Here the trader will pay a premium
C. At the same time, the trader will also sell a call option at a premium with an
even higher strike price and the same expiration date as the first call that has been
bought. In this case, the trader will collect the premium.
The premium received by selling the call will partially take care of the premium
paid to buy the call. So, the difference between the two call options is the cost
incurred in the options strategy.
Essentially, traders use the bull call spread when they expect the security prices to
grow moderately and not substantially, and also when the stock prices experience
volatility.
MINT PREMIUMSee All

PREMIUM
Why India is firing at China from foreign shoulders
 PREMIUM
Why rich Indians are investing in foreign residency plans

PREMIUM
India's first Ritz Carlton goes on the block

PREMIUM
Cement makers are in a hurry to add capacity
READ MORE: Bear market: what is it and when does it happen?
At the time of expiry of option, if the market price of security slides below the
lower strike price, the trader will not exercise the option. The trader, as a result,
will suffer loss to the extent of net premium paid to acquire the options. At the
same time, if the stock price jumps higher than the upper strike price, the trader
will exercise the buy call, enabling them to buy shares at a price lower than the
market price.
The gain earned will be the difference between the lower strike price and higher
strike price minus the net premium paid.
So, a bull call spread is a good options strategy that limits the risk incurred in call
options purchased. At the same time, disadvantage in the strategy is that the gains,
too, are capped up to the difference between the two strike prices.
 
This story was first published on  MintGenie and can be accessed  here. 
Catch all the Business News, Market News, Breaking News Events and Latest
News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More
Subscribe toMint Newsletters

Comments
Post commentView Comment
Post your comment
 Recommended For You
Latest update: Cyrus Mistry and co-passenger killed in car crash not wearing seat belts
2 min read . 5 Sep 2022

Why India is firing at China from foreign shoulders

4 min read . 5 Sep 2022

PREMIUM
Canada job vacancies continue to climb. These sectors have most job posts
2 min read . 4 Sep 2022

Cyrus Mistry dies at 54: 5 things to know about former Tata Sons chairman
2 min read . 4 Sep 2022

'Well known doctor was driving...': Cops on Cyrus Mistry's death

2 min read . 4 Sep 2022

Connect with us:





CATEGORIES

 Money
 Markets
 Companies
 Mutual Funds
 Industries
 News
 Cryptocurrency
 Auto
 Technology
 Budget 2022
TRENDING NOW

 Stock Market LIVE

 Cyrus Mistry Death
 Tamilnad Mercantile Bank IPO
 National Awards to Teachers
 Amazon App Quiz
 Fuel Prices
 Multibagger Tata Stock
 Covid-19
 Federal Bank Shares
 Kotak Mutual Fund
 Cryptocurrency Prices
LATEST STORIES

 Shiv Sena MP Sanjay Raut's judicial custody ex...

 India’s services activity rises to 57.2 in Aug...
 Global auto component makers’ CY22 outlook bri...
 Blue Jet Healthcare IPO: Company files DRHP fo...
 HDFC Bank introduces new SMS banking facility ...
 Suzlon Energy shares hit 20% upper circuit
 Morgan Stanley buys stake in this cement stock...
 Teachers' Day 2022: All you need to know about...
 Aishwarya Venkatachalam: Indian CA who moved t...
 Covid-19: India reports 5,900 cases in a day
DOWNLOAD APP

Download the Mint app and read premium stories

 
 About Us
 Contact Us
 Terms Of Use
 Privacy Policy
 RSS



Copyright © 2022 HT Digital Streams Ltd All Right Reserved

×
We offer trading on a vast platform; National Stock Exchange, Bombay Stock
Exchange, MCX & NCDEX. More importantly, we make trading safe to the maximum
possible extent, by accounting for several risk factors and planning accordingly. We
are assisted in this task by our in-depth research, constant feedback and sound
advisory facilities. Our highly skilled research team, comprising of technical analysts
as well as fundamental specialists, secure result-oriented information on market
trends, market analysis and market predictions.

To empower the investor further we have made serious efforts to ensure that our
research calls are disseminated systematically to all our stock broking clients
through various delivery channels like email, chat, SMS, phone calls etc.