8 Minute Read

Options Theory: The Bull Call Spread

November 4, 2021

By | 2 Comments

Today’s video goes step-by-step through the bull call spread strategy.

Notes

Aka: Long Call Vertical Debit Spread

Bias: +2, +3, Low Implied Volatility

Structure: Buy around ATM call option & sell a higher strike call option in the same month. Use 2 to 3-months. (Shorter-term is more aggressive)

                A: Typical spread width is $5. You can widen/shrink the spread as needed.

                B. Don’t usually do a spread width < $3.

                C. The wider the spread the more potential profit/loss.

                D. The wider the spread, the higher the net delta.- more aggressive

Objective: Stock to rise above the higher the strike price (100/110 bull call. Target is $110+)

Guidelines around trade structure, which make the trade MORE AGGRESSIVE:

                A) Cost < 40% of the spread width

                                i. $10- spread: Pay $4 or less

                                ii. $5-spread: Pay $2 or less

                                iii. 150% ROI

                B) Net Delta: 25+

                                i. Buy +50 delta call, sell -25 delta call

                                ii. Buy 40 delta call, sell 15 delta call

IF I build a bull call spread and pay 50% of spread width, or only have a net delta of 15. It’s not wrong, it’s just more conservative. Use your best judgement.

Trigger: Same as other bull trades. Depends on pattern. Above prior day’s higher or above resistance.

Stop Loss:

1) Risk the entire trade cost.

2) Exit on a break of support.

Target:

1) Exit at the higher strike price.

2) Exit if you capture 60% to 80+% of profit.


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2 Replies to “Options Theory: The Bull Call Spread”

  1. MohammadVahidalizadehdizaj says:

    Thank you very much, Tyler. This video is very helpful. Can you please post a similar video for bull put or bear call as well? Also, please explain how you select between bull call/bear put and bull put/bear call. Is the preference only based on IV? How do you select?

  2. MattGuarino says:

    Great video, learned a lot. Obviously my issue is picking the right stock at the right time.

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