Comparing Bull Call and Bull Put Spread Profit at Expiration

Article Quant Q&A · Author: Sumit

Summary

The document addresses why a bull call spread and a bull put spread can appear to have different payoffs even when put–call parity holds. It emphasizes that the comparison depends on matching strikes and considering initial premiums as well as the option payoffs at expiration. A call spread can be constructed by buying a lower-strike call and selling a higher-strike call. A corresponding put spread uses a purchased put and a sold put with strikes chosen to create the matching terminal profile.

The key distinction is that the call spread generally requires an upfront debit, while the put spread can generate an initial credit. Both spreads reach their maximum payoff when the underlying finishes above the short strike, but their breakeven calculations differ because one starts with a debit and the other with a credit. The answer describes how those initial cash flows reconcile outcomes across price regions. It does not give numerical examples or address financing, transaction costs, early exercise, or differences in market quotes, so comparisons should include actual premiums and consistent contract terms.

Key ideas

Put–call parity relates option prices but does not imply that calls and puts with corresponding strikes have equal prices.
A bull call spread typically involves an upfront premium debit, while a bull put spread can create an initial credit.
To compare expiration profiles, match the strikes and maturities of the call and put spreads carefully.
The call spread’s breakeven includes the net premium paid, while the put spread’s breakeven accounts for the net premium received.
A comparison of strategy profit must include both terminal payoffs and initial cash flows.

Tags

Options Derivatives pricing Risk management

Full text

# Why does bull call spread shows higher payoff than bull put spread?

I am trying to compare bull call spread and bull put spread for equity index option. For the options where the put call parity holds, I am getting a different payoff for bull call spread and bull put spread, where bull call spread is giving higher payoff? What can be the reason for this and if the put-call parity holds, shouldn't the payoff of bull call spread and bull put spread match?

## Answer by AKdemy (score 1)

https://quant.stackexchange.com/a/65835

How do you define higher payoff? Could you show what you compute? Do you look at what the options cost at the moment?

If you want the same payoff (graphically and expiry), you can do the two things:

- buy call (say ATM) and sell call (OTM)

- buy put (ATM) & sell Put (ITM with same strike as OTM call)

Now, it is intuitive that (although same strike and tenor, hence same IVOL), that OTM is cheaper than ITM. Put call parity also does not state that calls and pulls cost the same, just that there is a relation. With a bull call spread, you have costs upfront, a bull put spread is actually an inflow of money up front as the ITM put that you sell is more expensive as the ATM you buy.

Profit is in both cases maximum when the underlying closes above the short strike on expiration. Breakeven however differs in calculation:

- bull call spread: Break even point = Lower strike price + Net premium paid

- bull put spread: Break even point = upper strike price - net premium received

In other words, if below lower strike, and calls, you simply have the costs that are lost. With puts, you have your inflow from selling ITM put minus the loss in the the put you sold ($notional*(K_{High}-K_{Low})$). Therefore, below lowest strike, you should have `upfront cost bull call spread = "income" bull put spread - loss of strategy`.

Similar arguments hold for in between and above higher strike.

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