An alternative name for a bull call spread which is an option strategy whereby a number of call options are bought at a certain exercise price and an equal number of calls (with same expiration date and underlying asset) are sold at a higher exercise price. Setting up this strategy comes at a cost because the premium that should be paid for the calls with the lower exercise price is higher than the one earned by selling the equivalent calls. Nevertheless, the call option spread strategy offers a potential profit opportunity embodied in the difference between the exercise price and the market price of the underlying at expiration date after adjusting for the cost of constructing this strategy. The potential profit is the result of an increase in the market price above the exercise price.
Bull call spreads are instrumental for investors who are fairly optimistic on an underlying stock, i.e. if they expect the stock price to go up moderately. Thanks to the put-call parity, this strategy can be replicated by taking two opposite positions on the same put option in a similar strategy known as a bull put spread.
The bull call spread is also called a long call spread.
Comments