Strategy in brief: buy call option with a lower strike and sell another call with a higher strike producing a net debit.
When to use this strategy : you expect the stock to go up or at least to be a bit more likely to rise than to fall.
Profit potential is limited, reaching its maximum if the stock ends at or above the higher strike at expiration.     
Loss is limited. It reaches its maximum if the stock at expiration is at or below the lower strike. This maximum is equal to the initial debit.
Risk: Limited.
Reward: Limited.

Comments
  • a good position if you want to be in the stock but are unsure of bullish expectations  (less aggressive than ""buy calls")
  • no margin requirements
  • the most popular bullish strategy
  • so-called "vertical" spreads  have the same expiration date for both legs
Example

Outlook

Buy Strike

Sell Strike

Debit

Max Profit

Break-even

Max Loss

Return % of Risk

Less Bullish

54

57

2.14

0.86

56.14

2.14

40.2%

More Bullish

55

59

2.33

1.67

57.33

2.33

71.7%



Research Findings and Trading Tips

  1. Time Value Decay: If the stock is midway between the strikes, there is no time effect. When the stock price is close to higher strike, profits increase at the fastest rate. When the stock price is close to lower strike, losses increase at a maximum rate.  

  2. More convenient than credit spreads. Many beginning option traders prefer bull put credit spreads over bull сall debit spreads. They prefer to get money than to pay.  However, both kinds have almost equivalent parameters. At the same time,  large margin requirements must be held to maintain credit spread  positions.  

  3. Bullish Call Spreads Vs. Call Option Buying. A debit call spread becomes profitable if the underlying stock moves up - hence it is a bullish position. The spread has both limited profit potential and limited risk. Although both can be substantial percentage-wise, the risk can never exceed the net investment. In fact, a bull debit spread requires a smaller dollar investment and therefore has a smaller maximum dollar loss potential than does an outright call purchase of a similar call. A call bull spread is always a debit transaction, since a call with a lower striking price must always trade for more than a call with a higher price, if both have the same expiration date.

  4. Bullish Call Spreads Vs. Underlying Stock Buying. Let's consider the profit/loss potential for the example presented above (current stock price - $57):


    Stock Price

    on Expiraion

    Less Bullish Spread 54/57

    More  Bullish Spread

    55/59

    Stock Buying

    $52

    -100%

    -100%

    -8.8%

    $53

    -100%

    -100%

    -7.2%

    $54

    -100%

    -100%

    -5.3%

    $55

    -53.2%

    -100%

    -3.5%

    $56

    -6.5%

    -57.1%

    -1.8%

    $57

    40.2%

    -14.2%

    0

    $58

    40.2%

    28.8%

    1.8%

    $59

    40.2%

    71.7%

    3.5%

    $60

    40.2%

    71.7%

    5.3%

As illustrated above, the 'bullish spread' strategies have a clear advantage over the 'buy stock' strategy in terms of profit potential. Depending on the strike (the more 'bullish' the strategy, the larger its maximum profitability), "bullish spread' strategies can be several times more profitable that a simple 'buy stock' strategy. The special feature of a 'bullish spread' strategy is its sensitivity around the break-even point. Slight changes in the stock price around the break-even point cause significant changes in the profitability of 'bullish spread' strategies. The more bullish your strategy is, the more sensitive it is around the break-even point.
 

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