A Bull Call Spread involves buying a call option at a lower strike price and selling a call option at a higher strike price. It profits from moderate price increases.
- Ideal for moderately bullish conditions, where a limited price rise is expected.
- Buying an ATM call and selling an OTM call reduces cost while limiting profit and risk.
- Risk is capped at the net premium paid, and profit is capped at the difference between the strike prices minus the premium paid.
Example:
- NIFTY trading at 18,000.
- Buy 18,000 Call at ₹200 and sell 18,300 Call at ₹100 (lot size = 50).
- Outcome:
- If NIFTY rises to 18,300 at expiry:
- Gain on bought call = ₹300 × 50 = ₹15,000.
- Loss on sold call = ₹0.
- Net profit = ₹15,000 − ₹5,000 (net premium) = ₹10,000.
- If NIFTY rises to 18,500 at expiry:
- Gain on bought call = ₹500 × 50 = ₹25,000.
- Loss on sold call = ₹200 × 50 = ₹10,000.
- Net profit = ₹25,000 − ₹10,000 − ₹5,000 = ₹10,000 (capped).
- If NIFTY stays below 18,000 at expiry:
- Both options expire worthless.
- Net loss = ₹5,000.
- If NIFTY rises to 18,300 at expiry: