Bull Call Spreads: Capped-Risk Options Payoff and Example

Summary

The article describes a bull call spread, formed by buying a call and selling another call on the same underlying with the same expiration but a higher strike. The net premium paid is the maximum loss, while the difference between strikes less that premium sets the maximum profit; breakeven is the long strike plus the net premium. The worked Infosys example buys the 1160 call for 20 and sells the 1200 call for 11, leaving a net debit of 9. It explains outcomes below the lower strike, between the strikes, and at the upper strike, then illustrates calculating and plotting the component and combined payoffs.

The setup expresses a moderately bullish view while limiting both risk and upside. The example is tied to a specific stock, date, and stated premiums, so it is not a current quote or a universal expectation. The payoff discussion focuses on expiration and intrinsic value; it does not address early exercise, transaction costs, changing implied volatility, or execution quality. Those factors can affect real results.

Key ideas

• A bull call spread buys a lower-strike call and sells a higher-strike call with the same expiration.
• The initial net debit defines the maximum loss for the spread.
• Maximum profit is limited to the strike gap less the net debit.
• At expiration, payoff depends on whether the underlying is below, between, or above the strikes.
• The example plots leg-level and combined payoffs, but omits several real-world trading costs and risks.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.