A bull call spread involves going long on a lower strike call and short on a higher strike call, with both calls on the same underlying with same expiry date.

This week, we discuss the costs associated in executing a bull call spread.

Typically, a bull call spread is initiated in two legs — long leg and short leg separately. The issue is that short options, being obligations, attract SPAN margins. Note that short call is an obligation to sell. NSE allows SPAN spread margin benefit if your short call is covered by a long call. Therefore, it is beneficial to place the order for long call first. After the order for the long call is confirmed, you should immediately place an order for the short call to avail the SPAN spread margin.

This, however, exposes you to the risk of slippages, albeit marginally. Suppose the short call is trading at 90 when you place the long call order. By the time you place the order for the short call, its price could have dropped to, say, 87. Fortunately, new-generation, technology-driven brokers allow you to place a basket order. That is, you can choose the long and the short strikes, and implement the call spread as one order. The order is sequenced to help you avail the SPAN spread margin benefits. Also, such basket orders lower slippage costs.

What about closing the position? If you are manually placing the orders for each leg, you must close the short leg first and then the long leg. This helps you avoid triggering the higher SPAN margin on your short position. This is how basket orders for bull call spreads must be created. Note that when you choose your short call position, SPAN margin is released immediately. What if you close the long call first? The sale proceeds are immediately available in your trading account, which you can use to buy the strike to close your short leg. But you will briefly trigger the SPAN margin requirements, as the short call will, momentarily, be a naked position. The short position will be closed but will attract a penalty if your trading account does not have enough money to fund the margin.

Bull call spread gets more involved when your long position is in-the-money (ITM) as the options approach expiry. This is because your long leg will attract delivery margins, as delivery is compulsory for ITM calls at expiry. Your broker will presume that your ITM long calls will be exercised at expiry and charge delivery margins, starting four days from the expiry date. So, the long leg will attract delivery margins whereas the short leg will attract SPAN margins.

That means, the capital allocated for your bull call spread will be high. You can reduce the margin requirements by closing your spread position before the Wednesday preceding the Tuesday expiry. The trade-off is that your potential gains may be lower. 

The author offers training programmes for individuals to manage their personal investments

Published on September 5, 2026