Hi everyone: this is the first video in a mini series about different options: strategies when i first started training options. I found the multitude of strategies to be very confusing. I'm making this series in an effort to help lessen your learning curve to kick things off i'll, be covering the bull call spread i'll, be going over everything from the theory behind it to how to execute it. On the robinhood trading platform, stick around until the end of the video to see a live execution of this spread.

To start, let's cover when you should be using a bull call spread. This strategy should be utilized when you think the underlying stock will be going up over a certain period of time, but not by much to properly create this spread. You would buy a call option and sell another one at a higher strike price relative to the first. Both of these options would have the same expiration date to make this explanation more clear, here's a specific example: you would buy a call option on xyz with a strike price of 50.

The premium or cost of this option is three dollars. Next, you would sell a call option on xyz at fifty five dollars for a dollar. Seventy five. This option would have the same expiration date as the first.

Since you sold this option, you would be credited the premium to create this spread. It would cost a total of 125, occasionally the bull call spread is referred to as a debit call spread, since it is initiated with a net debit. Now that the bull call spread has been successfully constructed, let's go over the three ways: it could play out scenario. One is when the options expire and xyz is at or below 50.

This situation represents the maximum possible loss, since both calls expire worthless, the premium paid for the first option is lost and the premium gain by selling. The second option is kept. This loss of 125 dollars would occur if xyz was trading anywhere from zero dollars to fifty dollars. One reason why bull call spreads are popular is because their max risk is both capped and fully known.

When you create the position, this risk mitigation does come at a cost, which brings me to scenario number two: the options expire and xyz is at or above 55. In other words, both calls would expire in the money. This situation represents the maximum possible gain. In this scenario, you would profit the difference between the two strike prices: minus the net cost of the spread.

For this particular example, the difference between the two strike prices is 5 and the net cost of the spread is 1.25. This means the profit would be 3.75 multiplied by 100 or 375 dollars similar to the way the max loss was capped. So is the max gain, no matter what price xyz is trading at as long as it is above 55 dollars, the profit would be 375 dollars. Finally, scenario: three: let's discuss what happens if xyz is trading between fifty dollars and fifty five dollars? This situation means the first option expires in the money and the second one is out of the money.

The return in this scenario can be thought of as a sliding scale between the maximum loss and the maximum profit. The break-even price can be computed by adding the net premium paid to the lower strike price. In this example, the break-even price would be 51.25. This means the return goes from negative 125 to zero, as xyz goes from 50 to 51.25.

Conversely, as xyz goes from 51.25 to 55 dollars, the return goes from 0 to 375. time. For a live example. On robinhood, i decided to create the spread using spy as the underlying with robinhood.

The trick to executing a complex option play is to hit the select button in the upper right hand corner this allows you to select multiple options here. I bought a call with a strike price of 297 dollars for 15 cents and then sold a call with a strike price of 302 for two cents. Both of these options have the same expiration date. As you can see, a call debit spread was successfully created for a net premium of 13 cents, which therefore cost me 13 in total, thanks for watching until the end, i hope you enjoyed the video.

I would appreciate it if you could hit the like button. It really helps with the youtube algorithm. I wish you luck with your option. Spread plays and, as always may the odds be in your favor.