Bull Call Spread
An option spread
is the simultaneously buying and writing options. An option spread can reduce option expenses while still providing some level
of price protection. One example of an option spread is referred to as the bull call spread.
bull call spread involves simultaneously buying and selling different call options. Selling an out-of-the-money call option
limits the amount you can gain if prices increase, but the premium you receive from the option sale reduces the net cost of
the option you purchased. It might be used when the investor is bullish on a market up to a point. An attractive feature of
the bull call spread is that once the strike prices are selected and the premiums are known, the user would know his maximum
loss and net potential gain.
In this type of spread, an investor would buy a call
option at a particular strike price and sell a call option at a higher strike. Typically, both options are traded in the same
contract month. The maximum loss is limited to the difference between the cost of the call option bought and the call option
sold plus commissions. The maximum gain is limited to the difference between the strike price of the call option bought and
the strike price of the call option sold less commissions.