A vertical call spread

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A vertical call spread is an options strategy that involves buying and selling call options with the same expiration date but different strike prices. It’s typically used when a trader expects moderate upside in the underlying asset and wants defined risk and reward.

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🧾 Vertical Call Spread Structure

Action	Type	Strike Price	Effect
Buy 1 Call	Long Call	Lower Strike	Profit if price rises
Sell 1 Call	Short Call	Higher Strike	Caps profit, reduces cost

📌 Both options have the same expiration date

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📊 Example

Let’s say stock XYZ is trading at $100:

• Buy 1 Call @ $100 → pay $5

• Sell 1 Call @ $110 → receive $2

• ✅ Net Cost (Debit) = $3 per share = $300 per contract

• ✅ Max Profit = ($10 spread – $3 cost) = $7 per share = $700

• ✅ Max Loss = Premium paid = $300

• ✅ Break-even = Lower strike + net debit = $103

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🟢 Why Use a Vertical Call Spread?

Advantage	Details
Lower Cost	Cheaper than buying a call outright
Defined Risk & Reward	You know max loss and max gain up front
Time Decay Protection	Selling the higher strike helps offset time decay on the long call
Directional Bias	Used when moderately bullish on the underlying asset

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🔴 Risks & Limitations

Risk	Explanation
Capped Upside	Profit is limited to the spread between strikes minus the cost
Full Loss If Flat/Down	If stock stays below the lower strike at expiration
Less profit in large moves	Compared to owning outright long call

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🧠 Summary

A vertical call spread is a strategic way to trade a bullish thesis while controlling cost and risk. It’s a favorite among traders looking to profit from modest upward moves without the high cost of long calls alone.