A bull call spread is a bullish options strategy that involves buying a call option at a lower strike price and simultaneously selling a call option at a higher strike price, both with the same expiration date. The strategy profits when the underlying stock rises above the lower strike, and maximum profit is reached when the price reaches or exceeds the higher strike at expiration.

The net debit is the cost of entering the spread, calculated as the premium paid for the long call minus the premium received for the short call. This net debit represents your maximum loss, which occurs if the stock stays at or below the lower strike at expiration and both options expire worthless.

The maximum profit is capped at the difference between the two strike prices minus the net debit, all multiplied by 100 shares per contract. The breakeven point is the lower strike price plus the net debit. This strategy is ideal when you expect a moderate rise in the underlying asset and want to reduce your cost compared to buying a call outright.

Formulas

Net Debit = Long Call Premium - Short Call Premium

Max Profit = (Short Strike - Long Strike - Net Debit) × 100 × Contracts

Max Loss = Net Debit × 100 × Contracts

Breakeven = Long Call Strike + Net Debit

Example

You buy a $100 call for $5.00 and sell a $110 call for $2.00 on 1 contract. The net debit is $5.00 - $2.00 = $3.00. Max profit is ($110 - $100 - $3.00) × 100 = $700. Max loss is $3.00 × 100 = $300. Breakeven is $100 + $3.00 = $103.00. The risk-reward ratio is 1:2.33.