I recently tried using a new options strategy, which is the BULL CALL Spread (BCS) Strategy. It is a bullish strategy that involves both buying and selling CALL options at different strike prices on the same expiration date.
Read more here: How Does Bull CALL Spread Work?
The companies that I used BCS on include Oracle, Palantir, Robinhood and BMNR. I am bullish on these stocks and have faith that they will close above their strike prices upon expiration.
Trade details:
[22 Sept 25] Bought Oracle Shares, Sold Sofi PUT, Bought Oracle BULL CALL Spread
Why BCS and not CSP or LEAPS CALL?
The reason why I chose BCS over Cash Secured PUT (CSP) and buying LEAPS CALL is that I am trading on limited capital, and that makes trading using CSP and LEAPS CALL difficult.
Take, for example, selling a CSP on Oracle will mean that I need to have USD32k worth of cash in the brokerage account if I were to sell an ATM PUT options contract at a strike price of USD320.
Likewise, the premiums of the LEAPS CALL options on stocks like Oracle or Palantir are expensive and carries the risk of Theta (time) decay if the stock remain sideway for a long time.
The Good & Bad About BCS
The one good thing about BCS is that the premium cost is not too high, as some of it would be recouped from the SELL leg of the BCS strategy. It is a good strategy for traders with a small capital.
However, the profits are likely to be capped at the maximum amount of the spread minus the premium paid when the position is initiated.
For example, for a BCS on Oracle, with strike prices of USD 450 (SELL CALL) and USD 430 (BUY CALL), and expiration date on 21 Jan 28, I paid a premium of USD 471.
So my max profit = (20 x 100) – 471 = 1529.
Which is not too bad, considering it’s three times my capital.
The maximum loss will be the premium that I paid, which is USD 471.
My Strategy
Essentially, this BCS with the longest expiration date is like a LEAPS CALL minus the Theta Decay, as both legs cancelled out each other. I am betting that Oracle will reach USD450 by Jan 2028, more than 2 years later, which would realise the maximum profit.
However, if Oracle continues to rise rapidly over the next few months, I may take profit and exit the trade if it has reached 80% of the maximum profit. I do not need to wait till the expiration date in 2028 to close my trade.
Concluding Thoughts
The BULL CALL Spread strategy is a way of trading options with a small capital, as the strike prices can be adjusted for a lower contract premium. While the profits are capped, the losses are capped too, equivalent to the premium paid. Overall, if we use BCS on fundamentally strong companies, given a long horizon (2 years), then it is likely to be profitable.
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