Call spreads are options strategies involving the purchase of both a long and short call with different strike prices. There are two different kinds:
- Bull call spread
- Bear call spread
The goal of a bullish call spread is to profit from an increase in the price of the underlying cryptocurrency.
Conversely, the goal of a bear call spread is to profit from an underlying coin or token staying the same price or declining in price.
Constructing call spreads
Bull and bear call spreads are constructed differently.
A bull call spread involves a long call with a low strike price and a short call with a high strike price — both with the same underlying cryptocurrency and date of expiry. With this structure, profit potential is limited by the coin or token’s price increasing above the short call’s strike price. Losses, meanwhile, are limited by the underlying cryptocurrency’s price falling below the long call’s strike price.
Bull calls are primarily implemented for their increased profit potential when compared to simply buying the lower strike call. They profit from the short’s time decay and an increase in prices.
A bear call spread involves a short call with a low strike price and a long call with a high strike price — but with the same underlying cryptocurrency and date of expiry. With this structure, potential profit is limited by net premiums and commissions, while potential losses are limited by the coin’s or token’s price increasing above the long call’s stock price.
In essence, bear calls are used to collect option premiums and limit risk — profiting from time decay and price decreases.
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Source: https://www.okx.com/academy/en/call-spreads