What is Bull call Spread Option Strategy?

What is Bull call Spread Option Strategy?

The bull call spread option strategy is very popular in options trading. It is a multi-leg option strategy which requires both buying and selling of a call option of different strike price of the same expiry of the same stock or index, in Bull call SpreadYou buy a lower strike call and You sell a higher strike call.

 It is a bullish strategy. It has limited risk and limited rewards. This strategy is executed when you have moderately bullish view on the stock or index. In this article you will learn about risk and reward profiles.

How to trade Bull Call Spread Strategy:

1. Buy Call Option:

• • The strategy begins with buying a lower strike call option, typically called as the “long call.”

• • This establishes the trader’s bullish view on the stock and index.

2. Simultaneous Sell Call Option

• • To reduce the risk of the long call, a higher strike call option is Sold known as the “short call,”

• • By selling a call option, you receive a premium and which will reduce the risk of the long call.

Risk And Reward Of Bull Call Spread Strategy:

1. Limited Risk:

• • The maximum loss in a bull call spread is limited. Premium paid for long call – (minus) premium received. Loss usually happens if the stock or index price closes below the strike price of long call

2. Limited Reward:

• • The maximum profit you can get is limited at the difference between the strike prices of the long and short calls, minus the net premium paid.

• • This profit occurs if the stock and index price closes above the strike price of the short call strike price at expiration.

Factors to consider for Bull call Spread Position Sizing:

2. How much risk you can take:

• • How much loss you can take before trading a bull call spread stategy.
    Don’t take very huge positions to manage potential losses.

• Asses Market Conditions:

• • Check market conditions and volatility.
    Keep on adjusting position sizes based on the level of risk in the market.

Money Management techniques for Bull call spread option strategy:

Key Money Management Principles:

 

1. Position Size Relative to Portfolio:

• • Avoid Greed : Dont put a major portion of your portfolio to a single bull call spread.
    Trade multiple options strategies to spread risk.

• Maximum Loss Limits:

• • Set maximum loss limits for each bull call spread based on your overall risk management ( How much percentage of loss you can take on overall capital).
    Don’t take huge position on a single trade has an outsized impact on your capital.

When to apply bull call spread:

1. 1. When you are Bullish ( You expect price to go up):

• • Execute a bull call spread when you when you expect index or stock to go up.
    Conduct thorough technical and derivative data analysis to support your bullish view.

How to Trailing Profits and Book Full Profits in Bull call Spread Strategy

2. Trailing Profits in Bull Call Spread:

• • Consider trailing profits by consistently looking at the position’s M2M.
    Adjust ( Move up the Strike Prices ) or close the spread if the underlying asset’s price approaches the short call’s strike price.

• Booking Full Profits in Bull Call Spread Option Strategy:

• • Consider booking full profits when the underlying asset’s price surpasses the strike price of the short call.
    A disciplined approach to profit-taking ensures capitalizing on favorable market movements.

How to set a Stop Loss in bull call spread strategy:

2. Setting Stop-Loss in bull call spread:

• • Implement a stop-loss order based on your risk appetite and technical analysis as per the chart.
    Always put a stop-loss to limit potential losses in case the market moves against your bullish view.

• Disciplined Implementation:

Don’t be greedy or fearful take position when charts tells you and accept stop loss if the trade goes wrong, and always trail profits and book full profits when your targets are met.

Key Takeaways:

The bull call spread strategy is a good strategy in which do not have risk of losing whole premium if the trade goes wrong. It limits your loss. In this strategy, you don’t buy naked call option, so the stop levels are also very deep as the sold call will not let the stop loss hit. It will cover you losses to some extent. 

All the professional traders, use this strategy, that’s why they are consistently profitable, Their whole capital is not at risk, only some portion of it is in risk which they can manage if the trade goes wrong. If you want to be a professional or a full time trader mastering this bull call spread trading strategy is essential