The bull call spread option trading strategy is initiated when the options trader expect the price of the underlying asset will go up reasonably in the short term. Bull call spread can be executed by buying an at-the-money (ATM) call option while simultaneously writing a higher striking out-of-the-money (OTM) call option of the same underlying security of same expiration month.
Bull Call Spread Formula
- Buy 1 ATM or ITM Call.
- Sell 1 OTM Call.
By selling the out-of-the-money call, the options trader reduces the cost of the bullish position but limits the chance of making a large profit in the event that the underlying asset price shoots up drastically.