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What Is a Bull Call Spread?

A Bull Call Spread is an options strategy used when you are moderately bullish on a stock or index. It involves buying a lower strike call and selling a higher strike call of the same expiry.

This reduces the cost compared to buying a naked call, but it also caps the maximum profit.

šŸ”¹ Market View

  • You expect the stock or index to rise moderately.
  • You do not expect a big rally beyond a certain level.

šŸ”¹ Example

  • Underlying: Nifty trading at 19,800
  • View: Expect a rise, but not beyond 20,200
  • Strategy: Bull Call Spread (monthly expiry)
  1. Buy 19,800 CE at ₹150 premium
  2. Sell 20,200 CE at ₹50 premium

šŸ”¹ Net Cost

  • Premium Paid = ₹150 (buy option)
  • Premium Received = ₹50 (sell option)
  • Net Cost = ₹100 (per lot Ɨ lot size)

This ₹100 is your maximum risk.

šŸ”¹ Profit & Loss Scenarios

  1. If Nifty expires below 19,800
    • Both options expire worthless.
    • Loss = ₹100 (Max Loss).
  2. If Nifty expires at 20,000
    • 19,800 CE = ₹200 intrinsic value.
    • 20,200 CE = worthless.
    • Net payoff = ₹200 – ₹100 cost = ₹100 profit.
  3. If Nifty expires at or above 20,200
    • 19,800 CE = ₹400 intrinsic value.
    • 20,200 CE = exercised → payoff given away (₹400 – ₹200 difference).
    • Net payoff = ₹400 – ₹200 = ₹200.
    • Minus cost (₹100) = ₹100 profit.

šŸ”¹ Strategy Summary

  • Max Loss = Net premium paid = ₹100
  • Max Profit = Difference in strikes – Net premium
    = (20,200 – 19,800) – 100
    = 400 – 100 = ₹300 per lot
  • Breakeven = Lower strike + Net premium
    = 19,800 + 100 = 19,900

šŸ”¹ When to Use?

  • When you expect a moderate rise, not a strong rally.
  • Works best in stable to slightly bullish markets.
  • Safer than buying a naked call because risk is capped
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