Call Vertical Spread Strategy

The Call Vertical Spread is a directional options strategy that involves buying and selling call options with different strike prices but the same expiration date. It’s used to express a bullish or bearish view while limiting both risk and reward. This strategy is popular for its defined outcomes and capital efficiency.

Structure

• Bull Call Spread: Buy lower strike call + Sell higher strike call
• Bear Call Spread: Sell lower strike call + Buy higher strike call
• Both legs share the same expiration date

Profit & Loss Profile

• Bull Call Spread: Max profit = difference in strikes - net premium paid
• Bear Call Spread: Max profit = net premium received
• Max Loss: Limited to net premium paid (bull) or spread width - premium received (bear)
• Breakeven: Bull = lower strike + premium paid; Bear = lower strike + premium received

Ideal Market Conditions

• Use bull call spread in moderately bullish markets
• Use bear call spread in neutral to slightly bearish markets
• Best when volatility is low for debit spreads, high for credit spreads

Example

A stock is trading at $100. You open a bull call spread:

• Buy 1 call at $95 strike for $6
• Sell 1 call at $105 strike for $2

Net debit = $4. Max profit = $6 (spread width) - $4 = $2. Breakeven = $99.

Risks & Considerations

• Profit is capped even if the stock rallies strongly
• Time decay and volatility shifts can affect pricing
• Assignment risk exists for short call leg