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Bull Call Spread Tutorial

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17 views

Bull Call Spread Tutorial

Uploaded by

none75r
Copyright
© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
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The Bull Call Spread options strategy is a bullish strategy with limited risk and

profit potential.

Benefits of the Strategy


Reduced Cost: The primary advantage of a Bull Call Spread over simply buying a stock is cost
efficiency. When you buy a call option, it costs significantly less than buying the stock outright. By
selling the higher strike call (creating the spread), you offset the cost of the lower strike call,
further reducing your overall cost and risk.
Defined Risk: The maximum loss is limited to the net premium paid for the options. This
contrasts with buying a stock, where the potential loss can be much higher if the stock price falls
significantly. Less risk than buying a call option on its own as well.
Profit Potential: While the profit is capped (unlike owning the stock, which has unlimited upside
potential), the Bull Call Spread can still offer substantial returns if the stock price rises moderately.
For instance, a stock might go up 3%, while a bull call spread could return +100%.
Flexibility: This strategy allows traders to benefit from a bullish outlook while managing risk and
capital requirements more effectively than stock ownership.
Sell June 110 Call

Stock Price +$$$

Buy June 100 Call


180 Call = $8.25
190 Call = $3.37

180/190 Call Spread Price


$8.25 - $3.37 = $4.88
180 Call Price
$8.25

180/190 Call Spread Price


$4.88
Entry Stock Price: $95
Call Spread Strikes: Long 90 Call / Short 110 Call
Spread Entry Price: $8.65
Expiration: April 2023 (100 DTE at Entry)

The 90/110 call spread setup included an in-the-


money long call and out-of-the-money short call,
a moderately bullish setup giving the spread
intrinsic value from the start.

The call spread value fluctuated throughout the


trade as AMZN went up and down, providing the
trade with profitable and unprofitable periods.

The stock price ran up in the week before


expiration, ending at $106.96, resulting in the
90/110 call spread ending with a value of $16.96
+$831 (+96%) per spread.

Stock Price Increase = +13%


Call Spread Return = +96%
Entry Stock Price: $398
Call Spread Strikes: Long 400 Call / Short 420
Call
Spread Entry Price: $8.51
Expiration: March 2023 (63 DTE at Entry)

The 400/420 call spread setup included an at-


the-money long call and out-of-the-money short
call, an aggressive bullish setup requiring the
stock to increase to reach the expiration
breakeven price of $408.51.

The call spread value increased nearly 100% from


the initial SPY rally up to $418, but the gains
faded as SPY reversed course.

The stock ended at $390, resulting in the


400/420 calls expiring worthless (spread value of
$0).

SPY Return: -2%


Call Spread Return: -$851 (-100%) per spread.
500/700 Bull Call Spread (APR 2024)
Spread Width/Max Value
$200

Entry Price (Max Loss)


$55.22 ($5,522)

Max Profit
+$14,478

Max Return
+$14,478 / $5,522
= +262%

Stock Price Return for


Max Profit @ Exp.

$502 to $700 = +39%


600/700 Bull Call Spread (APR 2024)
Spread Width/Max Value
$100

Entry Price (Max Loss)


$20.07 ($2,007)

Max Profit
+$7,993

Max Return
+$7,993 / $2,007
= +398%

Stock Price Return for


Max Profit @ Exp.

$502 to $700 = +39%


600/800 Bull Call Spread (APR 2024)
Spread Width/Max Value
$200

Entry Price (Max Loss)


$32.45 ($3,245)

Max Profit
$16,755

Max Return
+$16,755 / $3,245
= +516%

Stock Price Return for


Max Profit @ Exp.

$502 to $800 = +59%


April 2024 600/870 Bull Call Spread Fill
April 2024 600/870 Call Spread: MSTR at $663

600 Long Call 870 Short Call


Purchase Price: $53.36 Sale Price: $15.47
Current Price: $145.95 Current Price: $56.12
P/L Per: +$9,259 P/L Per: -$4,065
P/L x 3 Contracts: +27,777 P/L x 3 Contracts: -$12,195

600/870 Call Spread


Purchase Price: $37.89
Current Price: $89.83
P/L Per: +$5,194
P/L x 3 Contracts: +15,591
MSTR 600/870 Bull Call Spread (Apr 2024)

Entry: $37.89
Exit: $82.95
Total P/L: ($82.95 - $37.89) x 3 Spreads x $100
= +$13,518
MSTR 600/870 Bull Call Spread (Apr 2024)

Entry: $37.89
Call Spread Position: Buy 600 Call, Short 870 Call
Expiration: April 19, 2024
MSTR 550/650 Bull Call Spread (Jan 2024)

Entry: $21.46
Exit: $54.96 (average)
Total P/L: ($54.96 - $21.46) x 3 Spreads x $100
= +$10,051
MSTR 600/650 Bull Call Spread (Jan 2024)

Entry: $9.35
Exit: $28.98 (average)
Total P/L: ($28.98 - $9.35) x 4 Spreads x $100
= +$7,852

Total P/L for the Bull Call Spreads


$13,518 + $10,051 + $7,852 = +$31,421
MSTR Tanked!
It’s a good thing I closed the short-term January spreads because MSTR tanked after exiting them.

550/650 Call Spread in Jan 2024 600/650 Call Spread in Jan 2024
Exit Price: $54.96 ($5,496 Value) Exit Price: $28.98 ($2,898 Value)
Current Price: $3.45 ($345 Value) Current Price: $0.90 ($90 Value)
600/870 Call Spreads (Apr 2024)
Exit Price: $82.95 ($8,295 Value)
Current Price: $28.63 ($2,863 Value)
The spread can only be worth the width of its strikes x 100:
$15-Wide Spread x $100
= $1,500 Max Value

265 Call = $35 I pay $3,500 to close the 265 call I sold.
Stock Price = $300 250 Call = $50 I receive $5,000 for selling the 250 call I own.
Net Received = +$1,500
If I initially bought the spread for $600, my net P/L is
+$900.
If the spread is fully in-the-money and I hold it through expiration:

Short 265 Call Assigned = I sell 100 shares at $265


Stock Price = $300
Long 250 Call Exercised = I buy 100 shares at $250
The exercise/assignment cancels out and I make +$1,500.
If I bought the spread initially for $600, my profit is +$900.
If the spread is partially in-the-money and I hold it through expiration:

Stock Price = $255

Short 265 Call Expires Worthless = No assignment.


Long 250 Call Exercised = I buy 100 shares at $250.
I end up buying 100 shares for $250/share. With the shares at $255 I can
sell them for a $500 gain.

Since I paid $600 for the spread initially, my P/L would be -$100.
If the spread is partially in-the-money and I hold it through expiration:

Stock Price = $255

Account Value: $5,000


Spread Purchase Value: $600
Spread Expires Partially ITM: Buy 100 Shares at $250/share

Account Value: ~$5,000


Value of 100 Shares at $250/share: $25,000
Account Buying Power: -$19,000

Required Action: Sell shares immediately to relieve negative


buying power (or brokerage will sell them for you).
Do not allow your spread to expire partially in-the-money.
Close the spread on the day of expiration if it is partially in-the-money like this:

Stock Price = $255


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