Bull Call Spread
A bull call spread buys one call and sells a higher-strike call on the same share and expiry, as one order, for a net debit. The debit is the most it can lose. The gap between the strikes, less the debit, is the most it can make, and everything the share does above the higher strike is given up. It is built for a rise to a named price by a named date. On this page's BP example, the December 500 and 580 calls on one 1,000-share ICE contract, that is £352.80 at risk for at most £444.40, breaking even at 535.00p.
BP is used as a model underlying; this is not a view on BP, and the trade date, Monday 17 August 2026, is fixed and in the past. The page builds on the long call and the Level 2 defined-risk rules. Every figure is modelled, not quoted: modelled example: inputs and method.
Two BP December calls on one ticket
Selling the 580 call takes £142.50 off the cost of the 500 call and cuts the time value carried from £192.50 to £50.00, 74.0% less. What it sells is every penny BP might add above 580p before 18 December. The outright 500 call breaks even at 549.25p; the spread at 535.00p, a rise of 0.9%.
The contract. BP options trade on ICE Futures Europe as the standard 1,000-share contract only: BP is not one of the 22 UK names with a 100-share mini (contract sizes). One penny of premium is £10 a contract and the tick is 0.25p (£2.50). ICE authorises the strikes it lists, so the live chain may not carry every strike used here; a broker that offers the series and quotes a two-way price is the first thing to check (broker map).
£352.80 at risk, £444.40 at most
BP December 500/580 call spread, profit or loss per contract before costs, at expiry and on two earlier dates. At 620p on the entry date the model marks it at £299.74, not £450: the cap is only paid at expiry (see value over time).
Commissions follow the library's cost rule: £2.80 to open, and £1.40 for each leg that still has value to sell or exercise. At exactly 580p the short call expires worthless, so that row carries one closing commission, not two. The model probability (risk-neutral, lognormal, IV 26%) of BP finishing above the 535.00p breakeven is 44.7%; above 580p, where the full £444.40 is paid, 25.2%; below 500p, where the full £352.80 is lost, 37.7%. The 500 call's delta of 0.70 is not the same thing as its 62.3% model probability of finishing in the money (why delta is not a probability).
How these numbers are calculated
Debit = long premium − short premium = 49.25p − 14.25p = 35.00p, or £350.00 on 1,000 shares. Maximum loss = debit + two opening commissions = £352.80. Maximum profit = (80p − debit) × 1,000 − four commissions = £444.40. Breakeven at expiry = 500p + debit = 535.00p (535.42p after the three commissions that apply there). Before expiry each call is priced on the binomial tree with the 6.39p dividend taken out of the share price on 12 November, and the spread's value is the long call's value less the short call's. Probabilities are N(d2) at IV 26%, with the dividend's present value taken out of the share price. The one-standard-deviation band is 530p × e±0.26√(123/365).
Four widths on one BP chain
The strikes decide the trade more than anything else on the ticket. Four December spreads priced on the same chain, on the same day, at the same 26% IV:
Read across a row and the trade-off is always the same one. The narrow 500/540 spread costs £215.00 to make at most £179.40, a reward-to-risk of 0.82 : 1: the two premiums nearly cancel, so the buyer pays mostly for intrinsic value already in the price, and in return gets the highest model probability of finishing above breakeven, 51.4%. The 520/600 spread pays up to £519.40 but finishes above breakeven in only 38.7% of the model's outcomes, and it is net long volatility (+£2.21 a point) where the 500/580 is almost flat (−£0.38). The 530/580, with the long call at the money, costs £182.50 and pays 1.68 : 1 on a 38.4% probability. At the model's own prices every row is a fair bet before costs (why no convention changes that); the choice is between probability and payoff, and how far BP has to travel by 18 December.
The same strikes as puts: debit or credit, by parity
A 580/500 bull put spread (sell the 580 put, buy the 500 put) makes the same bet from the other side of the premium. On European options the two are tied exactly: the call spread's cost plus the put spread's credit must equal the 80p width discounted to today, because owning one and selling the other locks in the width (put-call parity).
American exercise breaks the tie by 1.49p on the 500 call, which a holder could exercise before the 12 November ex-date, and by 1.00p on the 580 put, which is 50p in the money from the start. On the tick the put version takes in £460.00 (64.25p and 18.25p) for a maximum loss of £342.80 and a 534.00p breakeven. What differs is not the payoff but everything around it: the granted 580 put is a £641.10 gain dated the day it is sold (any buy-back is later set against it), it can be assigned early long before expiry, and pairing one spread with the reverse of the other is a box, whose locked-in return HMRC can tax as income. The bull put spread page works the credit version on its own example.
Why the cap is paid only at expiry
The spread can never be worth more than 80p, and before 18 December it is worth less than 80p even with BP far above 580p. The short 580 call still has time value that its buyer has not given up, while the long 500 call, deeper in the money, has less. That gap is the time value the short call still holds for the weeks that remain. The table follows the model value day by day, with BP held at four prices.
The same spread as a share of its width, every day to expiry. The lines for 580p and 620p reach 100% only on the last day; the small step in mid-November is the 12 November ex-date.
Three things follow for this trade. A holder who is right early is paid most of the width, not all of it: at 620p with 63 days left the spread is worth 71.96p (90%), and at the 580p target 58.60p (73%). The last tenth is collected only by holding through the final weeks, when the position has turned short gamma (next section), and at 580p itself the spread is still worth only 71.82p a week before expiry. And with BP unchanged the value barely moves (32.87p on 16 October, 32.67p on 27 November) because the long call's time decay is almost matched by the short call's, which is what a 50%-of-maximum profit target trades on: it takes the part of the width that arrives early and leaves the part that arrives late.
Greeks: the position turns short-premium above about 531p
Vega is where this spread parts company with the long call. The outright 500 call carries £10.33 of vega a point and −£1.67 of theta a day at entry; the spread carries −£0.38 and −£0.30, because the short 580 call cancels almost all of it. BP reports its third-quarter results on Friday 30 October, inside the window. If IV fell from 26% to 22% that day with BP unchanged at 530p, the outright call would lose £21.24 and the spread £3.82 (event volatility around results).
The sign of gamma changes at about 531p at entry, and at about 540p by mid-October. Below that level the spread behaves like a long call: time costs money and a rise in IV helps (+£5.77 a point after an instant fall to 455.8p). Above it the short call dominates: after an instant rise to 616.3p theta is +£0.78 a day in the holder's favour, vega is −£8.38 a point and gamma is −26.3. A winning bull call spread is a short-premium position, which is why its last pounds come slowly (where a spread changes character; units on the position Greeks section).
The worked plan: five endings
The plan follows the library's teaching conventions, which are conventions, not rules: take profit at 50% of the maximum (£222.20, a spread value of 57.78p); close at a loss of half the debit (£175.00, a spread value of 18.06p); close with 21 days left, on Friday 27 November, whatever the result. Each ending shows the convention firing first, then what holding on would have given.
BP at 580p on Friday 16 October: the target fires
BP at 548p on Friday 27 November: the 21-day close
Right on direction and slow: the ending this structure is built for.
BP at 498p on Friday 16 October: the stop fires
Held to expiry at 610p: delivery, and £25.00 of SDRT
A holder who skipped every convention and let both calls run into expiry has the 500 call exercised and the 580 call assigned on Friday 18 December.
ICE exercises in-the-money options at expiry under its own settings, and a broker's expiry procedure decides what happens to a position left open (pin risk and automatic exercise; the expiry day in UK time).
Below 500p on 18 December: both calls lapse
There is nothing to close. The loss is the £352.80 written down at entry: the 500 call's £493.90 is an allowable loss on 18 December, and the 580 call's grant stands as a £141.10 gain dated 17 August.
BP's 12 November ex-date and the 580 call
A spread still open on Wednesday 11 November with BP above 580p has a short call that a holder could exercise that evening to collect the 6.39p dividend. The holder compares the call's value if held through the ex-date with the intrinsic value exercise pays. The 0.5% SDRT on the 580p strike (£29.00 a contract) falls only on a holder without an options intermediary's relief (early exercise before an ex-date).
Just above the strike the call is nowhere near an exercise: at 583p it is worth 18.47p held through the ex-date against 3.00p of intrinsic value. At 620p a holder who exercised would be £25.41 a contract worse off. The line is crossed at about 634p for an intermediary with SDRT relief (at 640p the gain is +£8.47) and at about 664p for a private holder paying SDRT, who at 660p would still be £2.38 worse off. The quick test that compares the dividend with the call's time value flags the call from about 627p, earlier than the full comparison, because it measures time value before the price drop. Since the holders who exercise include intermediaries, a spread holder can treat assignment as likely from about 634p.
If the 580 call is assigned: exercise the 500, or sell it?
Say BP closed at 650p on Wednesday and the 580 call was assigned that evening. On Thursday morning the account is short 1,000 BP sold at 580p for Friday settlement, BP opens ex-dividend at about 643.61p, and the account owes the £63.90 dividend on shares it has not delivered. Against not being assigned, that costs the spread holder £19.07, the holder's gain from exercising: the call held through the ex-date would have been worth 68.09p against the 70.00p that exercise paid. Then there are two ways to cover the short shares with the 500 call:
On the model's prices, selling the call and buying the shares is £11.72 cheaper before the dealing costs of the second route; on a wide ICE quote the exercise route can come out ahead. Either way the spread is closed and the result is close to the full width, less the dividend owed. Some brokers act first: the assignment page describes a short call assigned without the shares and what Interactive Brokers says it may do with a call spread before an ex-date.
Adjusting: what each move costs in pounds
The mechanics of a roll, and how its two trades are taxed, are on the rolling page; adjusting spreads is covered there too.
UK tax: the 580 call is taxed where it was sold
A closed spread is two computations: the grant of the 580 call, with any buy-back added to its costs (TCGA 1992 s148), dated 17 August; and the sale or lapse of the 500 call, dated when it ends (written options, bought options). Taken to delivery, both options fold into one share computation (s144(2) and (3)). Figures assume the £3,000 annual exempt amount is used by other gains.
The trap is 5 April. Put the stop ending on March-to-May dates: the grant, net of the buy-back, is a £122.20 gain in 2026/27 (£22.00 or £29.33 of tax due by 31 January 2028), while the 500 call's −£305.30 falls in 2027/28 and cannot be carried back. Relief is deferred, and lost only if never used (across 5 April). A December 500 call bought again within 30 days of that sale is matched with it (30-day rule). None of this can sit in an ISA (wrappers); boxes are on the SA108 page.
Costs, and the account it needs
On a US chain: what changes
A US call spread is the same structure on a 100-share contract, and the chains are deeper. The differences that matter for this trade:
The strategy builder carries a US bull call spread counted in pounds.