Bull Call Spread
Prerequisite strategies: you must have traded the long call and the covered call with real money, so that you have already granted an option and been assigned once. Clear the Level 2 gate first. Next: the bear put spread, then the bull put spread.
Why this structure exists
Every structure in Level 1 is safe because of something you own: cash, shares, or a premium already paid. This tier changes the source of the safety. A bull call spread's worst case is fixed by construction — two legs of the same size and expiry, so you lose the debit or make the width minus the debit, and nothing you do afterwards changes either number.
What that buys is the removal of the long call's real enemy. The outright BP 500 call below costs £471.40, of which £170 is time value — rent on the clock, gone whether you are right or wrong. Sell the 580 call against it and the net time value falls to £32.50, 80.9% less. The trade stops being a race against theta and becomes a bet on a price by a date.
Why not just buy the long call? Because at anything but cheap volatility you overpay for upside you never forecast. The spread costs £136.10 less, breaks even 13.5p lower and lifts the modelled chance of profit from 38.2% to 44.7%. The price is a ceiling: above 593.3p at expiry — BP up 11.9% — the call earns more and keeps earning. If you cannot name a price BP stops at, you have a long call, not a spread.
Construction
| Leg | Buy / Sell | Quantity | Strike rule | Expiry rule | Target delta | Price |
|---|---|---|---|---|---|---|
| Lower call | BUY (debit) | 1 contract = 1,000 shares (ICE UK); 100 (US) | 1–2 strikes below spot, mostly intrinsic | 60–120 days; never the front weekly | 0.60–0.70 | 47p = £470.00 |
| Higher call | SELL (credit) | 1 contract, same expiry, same size | At your price target, and inside +1 SD | Identical to the long leg | 0.25–0.35 | 13.75p = £137.50 |
| NET | Net debit | 1 spread | 500 / 580, BP spot 530p | 123 days | +0.37 | 33.25p = £332.50 |
Same underlying, same expiry, same size, lower strike bought: break any of those four and it is not a vertical, it is two positions the broker margins separately. Four inequalities before the order goes in:
Formulas: max loss = debit × contract size + opening commission. Max profit = (width − debit) × contract size − both commissions. Breakeven = lower strike + debit + round-trip costs per share. Modelled at entry: 44.7% chance of finishing above breakeven, 24.7% of the full £461.90, 38.2% of the full £335.30 loss.
The ceiling is the whole trade: everything the outright call would earn right of 580p belongs to whoever bought that call from you, and you were paid £137.50 for it. Note how far the dashed line sits below the plateau — at 620p today the spread shows about £285 of profit, not £461.90. A debit vertical is paid in full only at expiry, which is precisely where you are not allowed to be.
Entry criteria
| Gate | Rule | Reason |
|---|---|---|
| IV rank / IV percentile | IVR 25–50. Below 25 buy the outright call; above 50 sell a bull put spread | The short leg only earns its keep when premium is dear. At 16% volatility the spread costs 88.2% of the outright call; at 38%, 55.2% |
| Days to expiry | 60–120, managed at 21 | Under 45 days it stops being directional and becomes a bet on one Friday |
| Strike selection | Long leg 0.60–0.70 delta; short leg at your written target, inside +1 SD | The short strike is your forecast. Cannot name it, cannot build this |
| Cost discipline | Debit ≤ 50% of width; net extrinsic ≤ 25% of debit | Fixes the payoff ratio at 1 : 1 or better before you look at a chart |
| Liquidity | Spread ≤ 10% of mid on each leg; open interest ≥ 100 on both | 10% on both ICE legs costs £60.75 round-trip — 18.3% of the debit, 10.8× the commission |
| Underlying | A liquid FTSE 100 name, or a US name if the ICE chain is too thin | ICE UK series are physically delivered over 1,000 shares |
| Event calendar | No results and no ex-dividend date inside the window | A short call that goes in the money before an ex-date should be assumed assigned |
Do not enter if: IV rank is above 50 — volatility is telling you to sell premium, not buy it, and the right structure is a credit spread; IV rank is below 25, where the outright call wins; the debit exceeds half the width; either leg fails the liquidity screen; you are in a cash account, because the order will be rejected; or you cannot write down the price you expect and the date you expect it by.
Debit or credit: the same view, two structures
A bull call spread and a bull put spread are one opinion — this share rises, or at least does not fall — from opposite sides of the premium. IV rank, not preference, picks between them.
| Bull call spread (debit) — this page | Bull put spread (credit) | |
|---|---|---|
| Legs on BP at 530p | Buy 500 call 47p, sell 580 call 13.75p | Sell 500 put 18.25p, buy 450 put 5.25p |
| Cash at entry | Pay £332.50 | Receive £130.00 |
| Max profit / max loss | £461.90 / £335.30 | £127.20 / £375.60 |
| Breakeven | 533.81p — BP must rise 0.7% | 487.28p — BP may fall 8.1% |
| Buying power used | £332.50 (the debit) | £370.00 (width − credit) |
| Use it when | IV rank 25–50 | IV rank above 50 |
| Day-one taxable gain | £137.50 (short 580 call granted) | £182.50 (short 500 put granted) — 140% of the net credit |
The debit version pays you for being right; the credit version pays you for not being wrong, which is why its payoff ratio is worse and its probability better. Note the last row: the credit structure books a day-one chargeable gain larger than the cash it received, because HMRC taxes the granted leg and ignores the bought leg until it closes.
Greeks at entry and how they evolve
| Greek (net, per contract) | Entry: 123 DTE, 530p | 61 DTE, unchanged | 7 DTE, unchanged | +1 SD (610p) at 61 DTE | −1 SD (450p) at 61 DTE |
|---|---|---|---|---|---|
| Delta | +0.371 (371 shares) | +0.509 | +0.942 | +0.272 | +0.161 |
| Gamma | +0.00018 | +0.00080 | +0.00456 | −0.00436 | +0.00476 |
| Theta | +£0.02/day | −£0.14/day | −£1.08/day | +£1.60/day | −£0.88/day |
| Vega | +£0.43/pt | +£0.98/pt | +£0.64/pt | −£7.05/pt | +£4.19/pt |
Black–Scholes at 26% implied volatility, 4% rates and a 4.5% dividend yield, per 1,000-share contract — inputs that reproduce the long call page's 47p premium, 0.66 delta and £10.90 vega exactly. The outright 500 call alone carries +£10.92 of vega and −£1.05 of theta a day at entry.
Vega decides this trade, and the table shows why by how small it is. Hold both positions to 61 days with BP unchanged and implied volatility 8 points lower — an ordinary summer — and the outright call is £132.43 down while the spread is £18.80 down. That is the whole argument for a spread when volatility is elevated, and against one when it is cheap.
The character flips at the breakeven. Net gamma is positive below about 536p and negative above it, so within a couple of pence of the 533.81p breakeven you stop owning premium and start being short it: at 583p with 21 days left, gamma is −0.0104 and theta has turned to +£3.38 a day in your favour. A winning spread is a short-premium position wearing a long-premium badge, and its last pounds are collected by selling gamma into expiry week — which is why holding to expiry is a gamma decision, not a patience one.
BP p.l.c. at 530p, target 580p by the year end, IV rank 38
BP ordinary shares were 530p on the LSE on 17 August 2026. The ICE Futures Europe BP option is quoted in pence per share, one contract confers rights over 1,000 shares, it is physically delivered, the tick is 0.25p and the December series stops trading at 16:30 London on Friday 18 December 2026. One penny of option price is £10 of contract value.
The trade, placed as a single spread order: buy 1 × BP December 2026 500 call at 47p, sell 1 × BP December 2026 580 call at 13.75p, 123 days to expiry.
Branch A — BP 583p with 61 days left. The spread marks 58.15p.
Branch B — BP 548p on 27 November, 21 days left. Right on direction, far too slow — the branch this structure exists for.
Branch C — BP 496p with 61 days left. The spread marks 17.10p.
Branch D — BP 610p and you let it expire. The branch with the stamp duty in it, and the reason the delivery-avoidance exit is not optional.
On the US chain instead — the realistic route for most UK retail, since a US contract is 100 shares and the chains are far deeper — the gain is still computed in sterling on each disposal date. A $4.40 spread costs $440, or £324.68 at GBP/USD 1.3552; close it for $1,060 with the rate at 1.4000 and the proceeds are £757.14. The dollar profit is 140.9%, but the chargeable gain is £432.47 rather than the £457.50 an unchanged rate would have given — £25.03 of currency, before the conversion spread, which lands on top and twice.
This is a single, hand-picked, favourable scenario. It is not a typical or expected outcome. Every premium is modelled from Black–Scholes at the stated inputs rather than taken from a live chain, and real ICE UK quotes are materially wider. Past performance, including any illustrative example shown here, is not a reliable indicator of future results.
Management and adjustment
| Trigger | Diagnosis | Action | Do NOT do this |
|---|---|---|---|
| Short strike reached, 45+ DTE left | The thesis arrived early; the spread is worth 60–75% of the width | Take the target, or roll the short 580 to 620 for a £148.14 debit — only if that is ≤ 50% of the £400 of width it buys | Roll the short strike up on a losing spread. That pays to enlarge a trade that is not working |
| Below the long strike at 45 DTE | Most of the debit is gone and delta is falling away | Close for the residual and book the loss | Roll the long strike down "to cheapen it" — a new trade financed by the corpse of the old one |
| IV rank rises above 50 | You hold the wrong structure for the environment | Hold: net vega is +£0.43 a point, so the expansion barely touches you. Route new bullish risk into a bull put spread | Buy more debit spreads because premium looks rich. Rich premium is an argument for selling it |
| IV rank falls below 25 | The short leg has stopped earning its keep | Hold to the plan; route new risk into an outright long call | Buy back the short leg alone — that turns a defined-risk trade into an unhedged long call at the worst price |
| Ex-dividend date inside the window | Above 580p with the short call's extrinsic below the dividend, early assignment is rational for the holder | Assume assignment; close the spread the business day before the ex-date | Leave it and hope. You find out from the overnight statement |
| Assigned early on the short 580 | You are short 1,000 shares; the long 500 call still covers you | Exercise the long call to deliver: £5,000 out, £25.00 SDRT, position closed at the width | Buy the shares in the market instead — you then pay 0.5% SDRT on the higher price |
ROLL WHEN the underlying has reached the short strike with more than 45 days left and you would open the wider spread as a fresh trade at today's prices. ROLL TO a higher short strike in the same expiry, never a lower long strike, as one order. Rolling 580 to 620 lifts maximum profit from £461.90 to £710.96 and the breakeven from 533.81p to 548.90p — but also the maximum loss, to £486.24, so the number you wrote before entry must be rewritten.
DO NOT ROLL a debit vertical out in time. Unlike a credit spread, a winning debit spread is worth less the more time it has: at BP 548p the 21-day 500/580 marks 45.34p against the 80-day one's 41.38p, so rolling out hands back £39.56 of value and pays £5.60 of commission to reopen a risk you had nearly finished. Losing, it costs a net debit, which lifts the maximum loss above the number you agreed to.
THE CORRECT ACTION IS TO CLOSE, NOT ROLL, when the stop is hit, the time stop is reached, the underlying is below the long strike inside 45 days, the reason you entered has been replaced, or the roll fails the arithmetic above. A debit vertical has no defence, because there is nothing to defend with. It has an exit.
Exit rules
The last £230.95 requires BP to sit above 580p on one specific Friday, and it is collected by holding short gamma through expiry week. If all four rules are silent, do nothing and check the delta tomorrow.
Margin and broker reality
A cash account cannot hold this trade, and that is where most UK first attempts die. A vertical contains a granted option and a cash account has no mechanism to carry one: Interactive Brokers permits only limited purchase and sale of options in a Cash account, so the order is rejected in the preview rather than at the exchange. You need a Margin account, for which IBKR's published minimum is USD 2,000 or equivalent, against no minimum for Cash. Hargreaves Lansdown, AJ Bell and Trading 212 offer no options at all, so this is an Interactive Brokers or Saxo trade.
What you do not need is more money or more permission. Because the long call's strike is lower than the short call's, at the same expiry and size, the long leg fully covers the short: the initial requirement is the net debit and nothing more, maintenance is nil, and uncovered-option permission is not required. Buying power falls by £332.50 and cannot fall further whatever BP does. Enter and exit as a single spread order — legging in leaves you briefly holding a naked short call, which the platform will refuse or margin punitively. And treat the ICE bid-ask as a margin-equivalent cost: 10% on each leg is £60.75 round-trip against £5.60 of commission, so the market maker charges almost eleven times what the broker does — on a thin UK series, often reason enough to take the structure to a US chain and accept the currency exposure instead.
net debit ≤ 50% of the width AND net extrinsic ≤ 25% of the debit. Fail either and do not place it — widen the strikes or buy the call outright.Portfolio fit
One spread contributes a net delta of +0.371 — 371 BP shares, or £1,966.77 of share-equivalent exposure carried on £335.30 of risk: £5.87 of exposure per pound at risk, against £7.46 for the outright call. Net vega is +£0.43 a point, effectively nothing, which is the point — a book of debit verticals is a directional book, not a volatility book, and is sized on delta and correlation.
At the 2% rule a £335.30 maximum loss needs at least £16,765 of account. Eight such spreads on £25,000 put £2,682.40 at risk (10.7% of capital) and use £2,660 of buying power (10.6%), inside the 25% cap this tier works to. But they carry a combined delta of 2,969 shares, so the binding constraint is concentration, not margin: eight positions on eight underlyings is a book; eight on one is one leveraged trade with extra commission.
What to trade instead
Simpler, from the tier below: the long call. It costs £136.10 more, breaks even 13.5p higher and carries £170 of time value instead of £32.50 — but it needs no margin account, generates one CGT event instead of three, and keeps everything above 593.3p. Take it below IV rank 25, or whenever the thesis genuinely has no ceiling.
Sideways, at this tier: the bull put spread is the same view sold rather than bought, for IV rank above 50; the bear put spread is this structure's mirror for a fall.
More precise, from later in this tier: the poor man's covered call replaces the long leg with a deep LEAP and sells a series of short calls against it, so the ceiling resets monthly rather than once. It needs far more capital and a view on term structure.
Risk statement
Listed options are complex instruments and most retail directional positions lose money. This is educational material about mechanics, margin and UK tax treatment, not a recommendation to trade BP or anything else, and it takes no account of your circumstances. Every premium here is modelled rather than quoted. If your trading becomes frequent enough to raise the investor-versus-trader question, that is one for a qualified adviser.