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What is a bull call spread?

What is a bull call spread?

A bull call spread is a vertical spread that buys and sells calls in a way that benefits from upward price movement but limits the risk of the short position.

Using calls options of the same expiration date but different prices, a bull call spread seeks to maximize profits for moderate price movements upward. A long position is taken in a call contract (meaning it is bought and held) that has a strike price near the current market price of the security or is at least lower than the other call contract used in this strategy.

The other call contract, with a higher strike price than the first, is sold short. Essentially what you’ve done is lessened the price of purchasing your long call by selling the short one, and, if your long call goes into the money, you may be able to keep your profits from that position as well as the premium you collected on the contract you sold short.

Your profits reach their maximum when the price goes above the short call position and the holder exercises it, at which point you must turn over your shares for the agreed-upon price, and the ride is over.

Keywords: portfolio management, long position, short position, options, vertical spread, call options,