What is a Bull Call Spread Strategy?

A bull call spread strategy is an “options strategy” used when a trader expects the underlying asset to rise, but within a specified range. Generally, it involves:

• Buying a call option at a lower strike
• Selling a call option at a higher strike
• Both options generally have the same expiry

How to Create a Bull Call Spread on NIFTY

Let’s understand through an example. Suppose NIFTY is trading at 25,000. A trader expects it to rise but not substantially beyond 25,500. Now, the trader may:

• Buy 25,000 Call
• Sell 25,500 Call
• Use the same expiry for both options

The premium paid for the 25,000 Call is partly offset by the premium received from selling the 25,500 Call. Additionally, 

• The maximum loss is generally limited to the net premium paid. It can be calculated as: Maximum Profit = Strike Difference – Net Premium Paid

and

• The maximum profit is limited to the difference between the two strike prices minus the net premium paid. It can be calculated as: Maximum Loss = Net Premium Paid.

Thus, the bull call spread strategy provides a defined maximum profit and maximum loss.

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