Bull call spread explained with a payoff table
Buy a lower-strike call, sell a higher-strike call: a cheaper bullish trade with a known cap on both profit and loss.
A bull call spread is a two-leg options position for a moderately bullish view. You buy a call at a lower strike and sell a call at a higher strike, same underlying, same expiry. The premium you receive on the sold call cuts the cost of the bought call.
The price of that discount is a cap. Above the higher strike, every rupee the long call gains is lost on the short call. So the spread has a known maximum loss, a known maximum profit and one breakeven, all of which you can work out before you place the trade.
The terms you need first
- Call option
- The right, not the obligation, to buy the underlying at the strike price on expiry. Index and stock options in India are European style, so they are exercised only at expiry.
- Vertical spread
- Two options of the same type and expiry with different strikes. The NISM workbook groups the bull call spread under vertical spreads.
- Net debit
- Premium paid on the long call minus premium received on the short call. A bull call spread always starts as a net debit because the lower-strike call costs more.
- Breakeven
- The expiry level at which the position neither gains nor loses: lower strike plus net debit.
Worked example: payoff at expiry
Illustrative numbers, not market prices. Nifty is at 25,000. You buy the 25,000 call for 200 and sell the 25,500 call for 60. Net debit: 200 minus 60 = 140 points. Figures are per unit of the index; multiply by the lot size the exchange sets to get rupees per contract.
24,500
Long 25,000 call
-200
Short 25,500 call
+60
Net P&L
-140
25,000
Long 25,000 call
-200
Short 25,500 call
+60
Net P&L
-140
25,140
Long 25,000 call
-60
Short 25,500 call
+60
Net P&L
0
25,300
Long 25,000 call
+100
Short 25,500 call
+60
Net P&L
+160
25,500
Long 25,000 call
+300
Short 25,500 call
+60
Net P&L
+360
26,000
Long 25,000 call
+800
Short 25,500 call
-440
Net P&L
+360
26,500
Long 25,000 call
+1,300
Short 25,500 call
-940
Net P&L
+360
| Nifty at expiry | Long 25,000 call | Short 25,500 call | Net P&L |
|---|---|---|---|
| 24,500 | -200 | +60 | -140 |
| 25,000 | -200 | +60 | -140 |
| 25,140 | -60 | +60 | 0 |
| 25,300 | +100 | +60 | +160 |
| 25,500 | +300 | +60 | +360 |
| 26,000 | +800 | -440 | +360 |
| 26,500 | +1,300 | -940 | +360 |
Breakeven, maximum profit and maximum loss
- check_circleMaximum loss = net debit = 140 points. It happens at or below 25,000, when both calls expire worthless.
- check_circleMaximum profit = difference between strikes minus net debit = 500 minus 140 = 360 points. It happens at or above 25,500.
- check_circleBreakeven = lower strike plus net debit = 25,000 plus 140 = 25,140.
- check_circleBetween 25,000 and 25,500 the payoff rises one point for every point Nifty rises. Outside that band it is flat.
- check_circleReward to risk here is 360 to 140. Moving the short strike higher raises the cap but earns less premium, so the debit rises. The workbook makes this exact point.
Free account, this exam preselected.
Bull call spread or bull put spread?
Both are bullish vertical spreads. The bull call spread uses calls and is paid for upfront (net debit). The bull put spread sells a higher-strike put and buys a lower-strike put, so it starts as a net credit. Same view, opposite cash flow at entry. Exam options often swap the two.
How Series VIII tests this
Expect a numerical question: two strikes and two premiums are given, and you pick the breakeven, the maximum profit or the maximum loss. The usual trap answers add the net debit to the higher strike, subtract it from the lower strike, or quote the strike difference as the maximum profit without deducting the debit.
A second pattern describes the position in words (long lower-strike call, short higher-strike call, same expiry) and asks for its name or the market view behind it. Moderately bullish, limited risk, limited reward is the answer the workbook supports.
FAQs
What is a bull call spread in simple words?expand_more
Buy a call at a lower strike and sell a call at a higher strike, same expiry. You profit if the underlying rises, but only up to the higher strike, and your loss is limited to the net premium you paid.
How do you calculate the breakeven of a bull call spread?expand_more
Lower strike plus net premium paid. In the example above, 25,000 plus (200 minus 60) = 25,140.
What is the maximum profit on a bull call spread?expand_more
The gap between the two strikes minus the net premium paid. With strikes 500 points apart and a 140-point debit, it is 360 points, reached at or above the higher strike.
Is a bull call spread risky?expand_more
The loss is capped at the net debit if held to expiry, which is why it is called a limited-risk strategy. It can still lose the whole debit if the underlying ends at or below the lower strike. This page explains the mechanics; it is not a recommendation to trade.
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