Bull Call Spread is a strategy that must be devised when the investor is moderately bullish on the market direction going up in the short-term.
A Bull Call Spread is formed by buying an “In-the-Money Call Option” (lower strike) and selling an “Out -of-the-Money Call Option” (higher strike). Both the call options must have the same underlying security and expiration month.
The net effect of the strategy is to bring down the cost and breakeven on a Buy Call (Long Call) strategy.
The investor will benefit if the underlying Stock/Index rallies. However, the risk is limited on the downside if the underlying Stock/Index makes a correction.
Investor view: Moderately bullish on the Stock/ Index.
Reward: Limited to the net premium paid.
Breakeven: Strike price of Buy Call + net premium paid.