We have changed our privacy policy. In addition, we use cookies on our website for various purposes. By continuing on our website, you consent to our use of cookies. You can learn about our practices by reading our privacy policy.


Bull Call Spread

  

A bull call spread is a type of trading strategy used when trading in options.

The trader believes that a particular security will go up a moderate amount in the near-term, so he or she purchases one call option, and at the same time sells another call option with the same expiration month, but with a higher strike price (the price at which an option can be exercised).

For example, a stock is now trading at $15 per share; the investor purchases a call option with a strike price of $21 and sells another call option with a strike price of $30. Since the investor wrote a call option with a strike price of $30, if the price of the stock jumps up to $36, the investor is obligated to provide shares to the buyer of the short call at $30. This is where the purchased call option allows the trader to buy the shares at $21 and sell them for $30, rather than buying the share at the market price of $36 and selling them for a loss.

Related or Semi-related Video

Finance: What's the Difference Between B...160 Views

00:00

Finance a la shmoop what's the difference between bear and bull? bear

00:07

pessimistic bad growly things coming Negative Nancy boo bear...Bull [Bear walking into water]

00:13

awesomesauce life's good you take it by the you know horns alright we're gonna

00:19

apply bear and bull to markets here but they apply to a whole lot of things and

00:22

a bear market is actually technical nomenclature that refers to sustained or [Bear market definition on 100 dollar bill]

00:27

prolonged periods of time where stock prices generally just fall...three

00:31

four five six seven eight quarters where the market craps the bed down down down

00:35

the bear market pattern is different from just a correction when the market

00:40

takes just a short term dump and then well you know quickly recovers yeah like [Bear market graph]

00:45

it has a bad quarter or two and then starts climbing again well that's not

00:49

the big bad bear that's just a correction a bull market is just the

00:53

opposite it goes up up up like this guy in his balloon-powered house and that's [House with balloons travels up a stock value graph]

00:57

it both are dangerous in the wild but on Wall Street huh you just have to watch

01:01

out for the Bears [Bear chasing a woman]

Up Next

Finance: What Is a Put Option?
84 Views

What is a put option? A put option is a type of contract that lets the investor sell shares of a stock at a certain price and within a window of ti...

Finance: What Is a Call Option?
25 Views

What is a call option? A call option is a type of contract that lets the investor buy shares of a stock at a certain price and within a window of t...

Find other enlightening terms in Shmoop Finance Genius Bar(f)