What is a Bull Call Spread?

How can a Bull Call Spread help you in the stock market? Let us show you, we did our research and found a stock bouncing off of support. Great, now what are we going to do with it? We could buy it, but what if it doesn't go up?

One strategy would be the Bull Call Spread. Using this technique we can make money even when the stock stays at the same price or goes down a little bit.

How can we do this you ask? Well, let's think about what calls are for a second. A call gives you the right to buy a stock at a certain strike price. A Bull Call Spread is simply buying a call option on a bullish stock and selling a call option on a bullish stock.

There are many different strike prices for optional stocks. What if we use the example below? Let's sell a $65 call for $7 and buy a $60 call for $12.

You must be thinking I'm out of my mind 7-12= -4. Why would anyone do that? The answer is really quite simple.....

Normally to sell it to we have to first buy it. Don't we have the right to buy it at $60?

Wow we just made $5. We did pay $4 originally so we only made $1. But that was a 25% return.

Of course we did need to risk $4 to make $1 with this trade. This means you have to be right a lot to make up for bigger losses when you are wrong. If you are right often enough it can be a great strategy. Let us see what would happen if we could be right with this trade 90% of the time.

Show You The Money:

($1)*(.9)-($4)*(.1)=$.5

This spread typically will return higher rates than Bull Put Spreads, it does lack the safety net if you are wrong however because on a bull put spread you can always change it around so that you own a put and make money on the downside if you are wrong more often then you are right.!