Bull Call Spread

Question 1

What is a bull call spread

Answer 1

Buy one lower strike call, sell one higher strike call of the same expiration month

Question 2

Is a bull call spread a net credit or debit

Answer 2

Debit

Question 3

What is the maximum profit

Answer 3

Limited = Difference in strike price - debit paid (underlying security at/above higher strike price)

Question 4

What is the maximum loss

Answer 4

Limited to the Debit paid

Question 5

Break-Even point

Answer 5

Lower strike (purchased call) + Debit paid

Question 6

Expectation

Answer 6

Moderately bullish, expects to profit from an increase in security. Bull call spread reduces the risk of a long call.

Question 7

Effect of time decay

Answer 7

If the underlying security is closer to the lower strike of the long call, losses should increase at a faster rate as time passes. Conversely, if the underlying security is closer to the higher strike of the short call, profits should increase at a faster rate with time.

Question 8

Most bullish

Answer 8

A spread bought when both calls are out-of-the-money.

Question 9

Moderately bullish

Answer 9

A spread bought when the underlying security is between the two strike prices.

Question 10

Least bullish

Answer 10

A spread bought when both calls are already in-the-money (primarily to take advantage of time decay).