A bull call spread is an options strategy used by investors anticipating a moderate rise in an asset’s price, or, in other words, when they are bullish on the asset’s prospects.
This tactic involves buying one call option while simultaneously selling another call option at a higher strike price, both having the same expiration date. The goal is to profit from an anticipated upward move in the asset’s price while limiting potential losses.
This strategy’s allure lies in its risk-limiting feature. The sale of the higher-strike call option helps offset the cost of purchasing the lower-strike call option, thereby reducing the net cost of the trade. It offers a limited-risk, limited-reward scenario. If the asset’s price rises, gains from the purchased call option may surpass losses from the sold call option, resulting in a profit. Conversely, if the asset’s price doesn’t rise as expected, the potential loss is limited to the initial cost of establishing the spread.
Investors often consider employing a bull call spread when they anticipate a moderate upward trend in an asset’s price, aiming to benefit from this movement while controlling their exposure to risk.