Bull Call Spread: Cost Reduction for Moderate Bullish Bets

1. Concept and Setup (Definition and Purpose)

The Bull Call Spread (BCS), or long call vertical spread, is an option strategy used when an investor expects the underlying asset's price to increase moderately. It is designed to lower the net premium cost compared to buying a single long call option, in exchange for capping the potential profit.

The Setup (Debit Spread): 1. Buy (Long) one Call option with a lower strike price (K1). 2. Sell (Short) one Call option with a higher strike price (K2). * Both options must have the same underlying asset and the same expiration date (T).

Since the premium paid for the lower strike (K1) is generally higher than the premium received for the higher strike (K2), this strategy results in a Net Debit (a net cash outflow), which represents the maximum possible loss.

Goal: To profit from a moderate price increase while limiting the initial cash outlay and maximum risk.