Online Trading Concepts

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Bull Call Spread Profit, Loss, & Breakeven

Bull Call Spread

1. Bull Call Spread Option Strategy
2. Bull Call Spread Profit, Loss, & Breakeven
3. Bull Call Spread vs Buying a Call

The following is the profit/loss graph at expiration for the Bull Call Spread in the example given on the previous page.

Break-even

The breakeven point for the bull call spread is given next:

• Breakeven Stock Price = Purchased Call Option Strike Price + Net Premium Paid (Premium Paid - Premium Sold).

To illustrate, the trader purchased the \$52.50 strike price call option for \$0.60, but also sold the \$55.00 strike price for \$0.18, for a net premium paid of \$0.42. The strike price paid was the \$52.50. Therefore, \$52.50 + \$0.42 = \$52.92. The trader will breakeven, excluding commissions/slippage, if the stock reaches \$52.92 by expiration.

Max Profit

The max profit for a bull call spread is as follows:

• Bull Call Spread Max Profit = Difference between call option strike price sold and call option strike price purchased - Premium Paid for bull call spread.

To illustrate, the call option strike price sold is \$55.00 and the call option strike price purchased is \$52.50; therefore, the difference is \$250 [(\$55.00 - \$52.50) x 100 shares/contract]. The net premium paid for the bull call spread is \$42. Consequently, the max profit is \$208 (\$250 - \$42). As a sidenote, this max profit occurs when the stock price is at \$55.00 (the upper call strike price) or higher at expiration.

Partial Profit

Partial profit is calculated via the following, assuming the stock price is greater than the breakeven price:

• Bull Call Spread Partial Profit = Stock price - Breakeven price

For instance, the stock closed at \$54.00 at expiration. Hence, the stock price at expiration (\$54.00) minus the breakeven stock price (\$52.92) would mean the trader profited \$108 [(\$54 - \$52.92) x 100 shares/contract]

Partial Loss

A partial loss occurs between the lower purchased call strike price and the breakeven stock price. The calculation is given next:

• Bull Call Spread Partial Loss = Breakeven price - Stock price

For example, a closing stock price at expiration of \$52.75 is between the lower strike price of \$52.00 and the breakeven of \$52.92 and is therefore going to be a partial loss. When calculated, the loss is \$17 [(\$52.92 - \$52.75) x 100 shares/contract]

Complete Loss

A complete loss occurs anywhere below the lower purchased call strike price (\$52.50) which amounts to the entire premium paid of \$42.

Next Page - Bull Call Spread vs Buying a Call