Bull Call Spread
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When discussing option spread strategies, the opposite of the option credit spread is the option debit spread.
While credit spread option techniques bring premiums in the form of credits INTO a traders account, debit spreads do just the opposite as the title of this method suggests – it pulls a debit out of the account. Also – generally when credit spread are used, the investor believes – or at least ‘hopes’ that the vehicle being used will move in the opposite direction of the options being used.
For example – if a non directional trading person had the opinion a particular stock would move downwards, they might put on a call credit spread – in hopes that the underlying moves down and away from that sold call spread,
In the case of debit spreads, the trader who is utilizing this spread option either believes or hopes that the stock or ETF being used will move towards the direction of the options being used in the vertical spreads.
For example, in the trader has the opinion that a specific stock will be heading higher, instead of SELLING a call credit spread – that trader would instead BUY a call debit spread – or a bull call spread – which would then profit if a move higher did in fact happen.
Let’s look at an illustration of a call debit spread:
Buy 4 GLD 110 Calls
Sell 4 GLD 115 Calls
The debit – or the ‘cost’ of this trade is the difference between the two strikes of the trade. This trade profits when the underlying being used moves bullishly.
