In a bull call spread, which two actions are taken by investors?

In a bull call spread, the strategy involves buying a call option at a specific strike price while simultaneously selling another call option at a higher strike price. This approach allows investors to capitalize on a moderate bullish outlook for the underlying asset.

By buying the call option, the investor gains the right to purchase the underlying asset at a predetermined price, which is useful if the market price exceeds this strike price. However, by selling a call option at a higher strike price, the investor generates premium income that helps offset the cost of purchasing the initial call option. The result is a net cash outflow that is lower than the cost of buying a single call option outright.

The maximum profit from this strategy occurs when the underlying asset's price is above the higher strike price at expiration, while the maximum loss is limited to the net premium paid to establish the spread. This risk/reward profile makes it an appealing choice for investors expecting a price increase but who also want to limit their exposure and costs.

Other choices do not align with the mechanics of the bull call spread. For example, simultaneously buying and selling put options or mixing calls and puts does not correctly represent this spread strategy and leads to different market exposures.