The psychology or reasoning behind placing a bull call spread is determined by the expected share price move and analysis of “The Greeks” and how they affect the option prices.
The expected share price movement is bullish. However because you are selling an out-of-the-money call to receive a premium you cap the upside profit potential. The reasons for doing this are;
- A premium is received and it lowers your entry cost.
- Share price outlook may be a bullish share price increase towards a resistance level or a limited rise in share price.
- Just buying a straight call options may be too expensive due to high volatility so selling an option against it may make the option trade affordable.
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