

Start Here

PLATFORM


Tour


Templates


Integrations


Pricing

EDUCATION


Courses


Strategies

OverviewLong callLong putShort callShort putCovered callCovered putProtective putCollar

strategyLEAPSBull call debit spreadBear call credit spreadBull put credit spreadBear put debit
spreadLong straddleShort straddleLong strangleShort strangleCall calendar spreadPut calendar
spreadIron condorReverse iron condorIron butterflyReverse iron butterflyCall butterflyPut
butterflyStrapCall diagonal spreadPut diagonal spreadCall ratio spreadPut ratio spreadCall
backspreadPut backspreadLong box spreadShort box spreadReversalStock repair

Topics

RESOURCES


Tutorials


Workshops


Podcast


Blog

SUPPORT


Help Center


Contact

Login Sign Up

All strategies

Bull Call Debit Spread

A bull call debit spread is a multi-leg, risk-defined, bullish strategy with limited profit
potential. The strategy looks to take advantage of an increase in price from the
underlying asset before expiration.

Bull call spreads are debit spreads that consist of buying a call option and selling a
call option at a higher price. The strategy looks to take advantage of a price increase
from the underlying asset before expiration. Increased implied volatility may also
benefit the bull call debit spread.

Bull Call Debit Spread market outlook

A bull call debit spread is entered when the buyer believes the underlying asset price
will increase before the expiration date. Bull call spreads are also known as call debit
spreads because they require paying a debit at trade entry. Risk is limited to the
debit paid at entry. The further out-of-the-money the bull call debit spread is initiated,
the more aggressive the outlook.

How to set up a Bull Call Debit Spread

A bull call debit spread is made up of a long call option with a short call option sold at
a higher strike price. The debit paid is the maximum risk for the trade. The maximum
profit potential is the spread width minus the premium paid. To break even on the
position, the stock price must be above the long call option by at least the cost to
enter the position.

The closer the strike prices are to the underlying’s price, the more debit will be paid,
but the probability is higher that the option will finish in-the-money. The larger the
spread width between the long call and the short short, the more premium will be
paid, and the maximum potential profit will be higher.

Bull Call Debit Spread payoff diagram

The bull call spread payoff diagram clearly outlines the defined risk and reward of
debit spreads. Bull call spreads require a debit when entered. The debit paid is the
maximum potential loss for the trade. Because a short option is sold to reduce the
trade's cost basis, the maximum profit potential is limited to the spread width minus
the debit paid.

For example, if a $5 wide bull call debit spread costs $2.00, the maximum profit is
$300 if the stock price is above the short call at expiration, and the maximum loss is
$200 if the stock price is below the long call at expiration. The break-even point
would be the long call strike plus the premium paid.
Entering a Bull Call Debit Spread
A bull call spread consists of buying-to-open (BTO) a call option and selling-to-open
(STO) a call option at a higher strike price, with the same expiration date. This will
result in paying a debit. Selling the higher call option will help reduce the overall cost
to enter the trade and define the risk while limiting the profit potential.

For example, an investor could buy a $50 call option and sell a $55 call option. If the
spread costs $2.00, the maximum loss possible is -$200 if the stock closes below
$50 at expiration. The maximum profit is $300 if the stock closes above $55 at
expiration. The break-even point would be $52.

 Buy-to-open: $50 call

 Sell-to-open: $55 call

Bull call debit spreads can be entered at any strike price relative to the underlying
asset. In-the-money options will be more expensive than out-of-the-money options.
The further out-of-the-money the spread is purchased, the more bullish the bias.

Exiting a Bull Call Debit Spread

A bull call spread is exited by selling-to-close (STC) the long call option and buying-
to-close (BTC) the short call option. If the spread is sold for more than it was
purchased, a profit will be realized. If the stock price is above the short call option at
expiration, the two contracts will offset, and the position will be closed for a full profit.

For example, if a call debit spread is opened with a $50 long call and a $55 short
call, and the underlying stock price is above $55 at expiration, the broker will
automatically buy shares at $50 and sell shares at $55. If the stock price is below the
long call option at expiration, both options will expire worthless, and the full loss of
the original debit paid will be realized.

Time decay impact on a Bull Call Debit Spread

Time decay, or theta, works against the bull call debit spread. The time value of the
long option contract decreases exponentially every day. Ideally, a large move up in
the underlying stock price occurs quickly, and an investor can capitalize on all the
remaining extrinsic time value by exiting the position.

Implied volatility impact on a Bull Call Debit Spread

Bull call debit spreads benefit from an increase in the value of implied volatility.
Higher implied volatility results in higher options premium prices. Ideally, when a bull
call debit spread is initiated, implied volatility is lower than it is at exit or expiration.
Future volatility, or vega, is uncertain and unpredictable. Still, it is good to know how
volatility will affect the pricing of the options contracts.
Adjusting a Bull Call Debit Spread
Bull call debit spreads have a finite amount of time to be profitable and have multiple
factors working against their success. If the underlying stock does not move far
enough, fast enough, or volatility decreases, the spread will lose value rapidly and
result in a loss. Bull call spreads can be adjusted like most options strategies but will
almost always come at more cost and, therefore, add risk to the trade and extend the
break-even point.

If the stock price has moved down, a bear put debit spread could be added at the
same strike price and expiration as the bull call spread. This creates a reverse iron
butterfly and allows the put spread to profit if the underlying price continues to
decrease. However, the additional debit spread will cost money and extend the
break-even point.

For example, if a $5 wide put debit spread centered at the same $50 strike price
costs $1.00, an additional $100 of risk is added to the trade, and the profit potential
decreases by $100.

 Buy-to-open: $50 put

 Sell-to-open: $45 put
Rolling a Bull Call Debit Spread
Bull call debit spreads can be rolled out to a later expiration date if the underlying
stock price has not moved enough. To roll the position, sell the existing bull call
spread and purchase a new spread at a later expiration date. This requires paying
another debit and will increase the risk, but will extend the duration of the trade.

For example, if the original bull call spread has a March expiration date and cost
$2.00, an investor could sell-to-close (STC) the entire spread and buy-to-open (BTO)
a new position in April. If this results in a $1.00 debit, the maximum profit potential
decreases by $100 per contract and the maximum loss increases by $100 per
contract. The new break-even price will be $53.
Hedging a Bull Call Debit Spread
Bull call debit spreads can be hedged if the underlying stock's price has decreased.
To hedge the bull call spread, purchase a bear put debit spread at the same strike
price and expiration as the bull call spread. This would create a long butterfly and
allow the position to profit if the underlying price continues to decline. The additional
debit spread will cost money and extend the break-even points.

Was this helpful?

Please share your feedback with our team.
YesNo

Se nd

AUTHORS
Kirk Du Plessis
Founder & CEO
Ryan Hysmith
Chief Market Strategist
Steve Henry
Content Writer

Last updated:
Apr 26, 2021
Originally published:
Feb 21, 2021

On this page

Bull Call Debit Spread market outlook

How to set up a Bull Call Debit Spread

Bull Call Debit Spread payoff diagram

Entering a Bull Call Debit Spread

Exiting a Bull Call Debit Spread

Time decay impact on a Bull Call Debit Spread

Implied volatility impact on a Bull Call Debit Spread

Adjusting a Bull Call Debit Spread

Rolling a Bull Call Debit Spread

Hedging a Bull Call Debit Spread

Download this free guide
It’s free, and it’s our most popular options strategy guide. Get your copy!
Read about our privacy policy.

$1,196,428
and counting...
That’s how much money traders have saved with our exclusive commission-free*
brokerage pricing. Pay $0 per trade & $0 per contract* when you trade with Option
Alpha.

Learn more

Start your free trial

All strategies

Long Call

Long Put

Short Call

Short Put
Covered Call

Covered Put

Protective Put

Collar

LEAPS

Bear Call Spread

Bull Put Spread

Bear Put Spread

Long Straddle

Short Straddle
Long Strangle

Short Strangle

Call Calendar

Put Calendar

Iron Condor

Reverse Condor

Iron Butterfly

Reverse Butterfly

Call Butterfly

Put Butterfly
Strap

Call Diagonal

Put Diagonal

Call Ratio

Put Ratio

Call Backspread

Put Backspread

Long Box

Short Box

Reversal

Stock Repair
Home
Education
Options Strategies
Bull Call Debit Spread

No-code, fully automated trading for stocks and options.

HomeAboutLegalStatusContact
©2022 Option Alpha. All Rights Reserved. Patent Pending USSN 63/118,547
To begin with, SEBI approved trading in index future contracts based on
S&P CNX Nifty and BSE-30 (Sensex) index. This was followed by approval for
trading in options based on these two indices and options on individual
securities. The trading in index options commenced in June 2001.

Futures contracts on individual stocks were launched in November 2001.

Trading and settlement in derivatives contracts is done in accordance with the
rules, byelaws, and regulations of the respective exchanges and their clearing
house/corporation duly approved by SEBI and notified in the official gazette.
INTRODUCTION TO FORWARDS;-
Forward Contracts
A forward contract is an agreement to buy or sell an asset on a
specified date for a specified price. One of the parties to the contract
assumes a long position and agrees to buy underlying asset on a certain
specified future date for a certain specified price. The other party assumes a
short position and agrees to sell the asset on the same date for the same
price. The parties to the contract negotiate other contracts details like delivery
date, price, and quantity bilaterally. The forward contracts are normally traded
outside the exchanges.

Salient features of forward contracts are as follows:-

 They are bilateral contracts and hence exposed to counter party risk.
Each contract is custom designed, and hence is unique