Quick Answer
A call bull spread is a bullish vertical: buy the lower-strike call and sell the higher-strike call at the same expiration for a net debit. It profits as the futures rises and the gap between the two call values widens toward the strike difference. Maximum profit is the strike difference minus the debit; maximum loss is the debit.
The call bull spread is the first of four vertical spreads, and the cleanest place to learn the pattern. It is a bullish position built from two calls, and everything else in this unit builds on the logic here.
The Bullish, Capped-Both-Ways Position
A call bull spread (also called a bull call spread, a long call spread, or a debit call spread) is a bullish vertical made of two calls at the same expiration. It is a lower-cost, capped way to be bullish on a futures price, cheaper than buying an outright call because selling the higher-strike call pays for part of the lower-strike call.
- Recall from the general options terminology unit that a call is the right to go long the future at the strike. Owning a call is bullish.
- You own the more valuable right (the lower strike) and finance it by selling the less valuable right (the higher strike).
- Because both legs share one expiration and the strike gap is bounded, both the profit and the loss are capped. There is no runaway outcome in either direction.
Build: Buy the Lower Strike, Sell the Higher Strike
- Buy the call at the lower strike; sell (write) the call at the higher strike, same expiration, same underlying futures.
- The lower-strike call costs more than the higher-strike call brings in, so you pay to enter. The position is a net debit (premium paid), and that debit is the cash at risk.
Think of it this way: you are buying the stronger bullish right and using the sale of a weaker one to knock down the price. The trade-off is that the sold call caps how high your profit can go.
Direction: Profits as the Futures Rises and the Spread Widens
NFA annotates this spread "spread to widen." Here is the cause-and-effect chain:
- Futures price rises → the lower-strike call gains value faster than the higher-strike call → the gap between the two call values widens toward the strike difference.
- The gap can widen only up to the strike difference. That ceiling is what caps the profit.
- At expiration, once the futures is at or above the higher strike, each call is worth its intrinsic value (the futures price minus its strike). Both calls then gain a dollar for every dollar the futures rises, so the gap holds at the full distance between the strikes.
- Before expiration, the gap only approaches that ceiling as the futures climbs well above the higher strike and both calls move deep in the money.
Exam Tip: Gotchas
- Widen, not narrow. A debit spread needs the gap between the two calls to grow. If an answer says this spread profits as the spread narrows, it is describing a credit position.
Maximum Profit and Maximum Loss
- Maximum profit = (strike difference) minus the net debit. Reached when the futures settles at or above the higher strike (each call is worth its intrinsic value, so the gap is the full strike difference).
- Maximum loss = the net debit paid. Reached when the futures settles at or below the lower strike, so both calls expire worthless and the whole debit is gone.
- Breakeven (concept): lower strike plus the net debit. The futures has to clear the debit above the lower strike before the position turns positive.
| Call bull spread | Detail |
|---|---|
| Build | Buy lower-strike call, sell higher-strike call (same expiration) |
| Cash flow | Net DEBIT (premium paid) |
| Outlook | Bullish (moderate rise) |
| Profits when | Futures rises; the call-value gap WIDENS toward the strike difference |
| Maximum profit | (strike difference) minus net debit |
| Maximum loss | net debit paid |
Example: buy the 100 call and sell the 110 call for a net debit of 4.
- Strike difference = 110 minus 100 = 10.
- Maximum profit = 10 minus 4 = 6, reached at or above 110.
- Maximum loss = 4, reached at or below 100.
- Breakeven = 100 plus 4 = 104.
- Check: max profit plus max loss = 6 plus 4 = 10, the strike difference. Foots.
Exam Tip: Gotchas
- A call bull spread is a DEBIT. You pay to enter, and the debit is the most you can lose. An answer that calls it a credit position has swapped it with the call bear spread (its mirror).
- The max profit is the strike difference minus the debit, not the strike difference. The sold call caps the upside; the debit you paid comes out of it. Reporting the full strike difference as the profit forgets the cost of entry.
What Should You Check on Exam Day?
- Can you explain why a call bull spread is a debit, not a credit?
- Do you know why the call bull spread wants the gap between the two calls to widen, not narrow?
- Can you state the maximum profit and maximum loss for a call bull spread in terms of the debit and strike difference?
- Do you know which strike you buy and which you sell to build a call bull spread?