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NISM-Series-VIII: Equity Derivatives · Strategies using Equity Futures and Equity Options

Bull, Bear, Butterfly and Calendar Spreads Explained

Updated 11 October 2026 · Fact-checked

A spread combines buying and selling options of the same type on the same underlying. Bull and bear spreads use two strikes in one expiry. A butterfly uses three strikes. A calendar spread uses two expiries. Find net premium, then maximum profit, maximum loss and breakeven.

Understand Spreads: Bull, Bear, Butterfly and Calendar

A spread means you buy one option and sell another option of the same type (both calls or both puts) on the same underlying. The option you sell brings in premium and reduces your cost. The price you pay is that your profit is capped. Both profit and loss are limited.

A vertical spread uses the same expiry but different strike prices. A bull spread profits when the price rises. A bear spread profits when the price falls. You can build either one with calls or with puts.

A bull call spread: buy a lower strike call, sell a higher strike call. You pay a net debit. A bear put spread: buy a higher strike put, sell a lower strike put. You also pay a net debit. In both cases the option you buy is the one closer to the money, so it costs more than the one you sell.

A butterfly spread uses three strikes with equal gaps. A long call butterfly: buy one low strike call, sell two middle strike calls, buy one high strike call. It profits most if the price ends at the middle strike, and it has a small, limited loss. So it suits a view that the market will stay range-bound.

A calendar spread uses the same strike but different expiries. You typically sell the near-month option and buy the far-month option. It gains from faster time decay in the near-month option. It is a view on low movement in the short term.

Key formulas to remember

Bull call spread (debit)
Buy call at K1, sell call at K2 (K1 < K2). Net debit = premium paid − premium received
Max loss = net debit. Max profit = (K2 − K1) − net debit. Breakeven = K1 + net debit.
Bear put spread (debit)
Buy put at K2, sell put at K1 (K1 < K2). Net debit = premium paid − premium received
Max loss = net debit. Max profit = (K2 − K1) − net debit. Breakeven = K2 − net debit.
Bull put spread (credit)
Sell put at K2, buy put at K1 (K1 < K2). Net credit = premium received − premium paid
Max profit = net credit. Max loss = (K2 − K1) − net credit. Breakeven = K2 − net credit.
Bear call spread (credit)
Sell call at K1, buy call at K2 (K1 < K2). Net credit = premium received − premium paid
Max profit = net credit. Max loss = (K2 − K1) − net credit. Breakeven = K1 + net credit.
Long call butterfly
Buy 1 call at K1, sell 2 calls at K2, buy 1 call at K3, where K2 − K1 = K3 − K2
Max profit = (K2 − K1) − net debit, at K2. Max loss = net debit. Breakevens = K1 + net debit and K3 − net debit.
Calendar spread
Sell near-expiry option, buy far-expiry option, same strike and type
Net debit. Loss is limited to the debit. Best result when price is near the strike at near expiry.
Payoff per unit (multiply by lot size)
Total rupee payoff = per-unit payoff × lot size
Premiums and strikes are quoted per unit.

How to solve Spreads: Bull, Bear, Butterfly and Calendar questions

Use this method for any spread question, whether it asks for payoff, breakeven or market view.

  1. 1Identify the legs: which options are bought and which are sold, their strikes, type and expiry.
  2. 2Classify it: two strikes with one expiry is a vertical spread; three strikes is a butterfly; one strike with two expiries is a calendar spread.
  3. 3Compute the net premium: premium paid minus premium received. A positive result is a debit; a negative result is a credit.
  4. 4Find the maximum profit and maximum loss using the formulas for that spread. For a vertical spread the strike gap is the key number.
  5. 5Find the breakeven. For debit spreads move from the bought strike by the net debit.
  6. 6Match the market view: bull spreads are moderately bullish, bear spreads are moderately bearish, butterflies are neutral.
  7. 7If the question gives a lot size, multiply the per-unit result by it.

Quickest way: Gap and net premium shortcut

When to use it: Use it for any vertical spread question with strikes and premiums given.

  1. Write the strike gap (higher strike − lower strike).
  2. Write the net debit or credit.
  3. Debit spread: max loss = debit, max profit = gap − debit.
  4. Credit spread: max profit = credit, max loss = gap − credit.
  5. Max profit plus max loss always equals the gap. Use this to check your answer.
  6. Breakeven for calls is lower strike plus net premium. For puts it is higher strike minus net premium.

Common mistakes in Spreads: Bull, Bear, Butterfly and Calendar

  • Treating the bull call spread breakeven as the higher strike.

    Students remember that profit is capped at the higher strike and mix it up with breakeven.

    Fix: Breakeven = lower strike + net debit. It lies between the two strikes.

  • Forgetting to subtract the premium received on the sold leg.

    Students use only the premium of the bought option.

    Fix: Always compute net premium = paid − received before anything else.

  • Confusing bear put spread legs by buying the lower strike put.

    Students copy the call pattern of buying the lower strike.

    Fix: In a bear put spread you buy the higher strike put and sell the lower strike put.

  • Calling a butterfly a directional strategy.

    It uses calls, so students assume a bullish view.

    Fix: A long butterfly is a neutral strategy. It gains most if the price ends at the middle strike.

  • Mixing up calendar and vertical spreads.

    Both involve two options of the same type.

    Fix: Vertical: different strikes, same expiry. Calendar: same strike, different expiry.

  • Saying a spread has unlimited profit.

    Students carry over the long call payoff.

    Fix: The sold leg caps the gain. Profit and loss are both limited in vertical spreads and butterflies.

Worked examples

Example 1

A trader buys a Nifty 24,000 call at ₹180 and sells a Nifty 24,200 call at ₹90, same expiry. Find the net debit, maximum profit, maximum loss and breakeven per unit.

Show the solution
  1. Net debit = 180 − 90 = ₹90.
  2. Strike gap = 24,200 − 24,000 = 200.
  3. Maximum loss = net debit = ₹90.
  4. Maximum profit = 200 − 90 = ₹110.
  5. Breakeven = 24,000 + 90 = 24,090.

Answer: Net debit ₹90; maximum loss ₹90; maximum profit ₹110; breakeven 24,090. Maximum profit occurs at or above 24,200.

Example 2

A trader buys a 500 put at ₹25 and sells a 460 put at ₹8 on a stock, same expiry. Find the breakeven and the profit if the stock closes at 440 at expiry.

Show the solution
  1. This is a bear put spread: higher strike put bought, lower strike put sold.
  2. Net debit = 25 − 8 = ₹17.
  3. Breakeven = 500 − 17 = 483.
  4. Strike gap = 500 − 460 = 40, so maximum profit = 40 − 17 = ₹23.
  5. At 440, both puts are in the money. The spread value is capped at 40, so profit = 40 − 17 = ₹23.

Answer: Breakeven is 483. At 440 the profit is ₹23 per share, which is the maximum profit.

Exam tips

  • Questions often ask for breakeven. Memorise: call spread uses lower strike plus debit; put spread uses higher strike minus debit.
  • Check which leg is bought. The bought option is the one with the higher premium in a debit spread.
  • For butterfly questions, expect the answer that it is a neutral view with limited profit and limited loss.
  • A wrong answer costs 25% of the question's marks in this paper, so skip a question only if you cannot narrow the options.
  • Use max profit plus max loss equals the strike gap to verify your numbers quickly.

Practice questions from Strategies using Equity Futures and Equity Options

Spreads: Bull, Bear, Butterfly and Calendar in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Spreads: Bull, Bear, Butterfly and Calendar: frequently asked questions

What is the difference between a bull spread and a bear spread?

A bull spread profits when the underlying price rises moderately. A bear spread profits when it falls moderately. Both have limited profit and limited loss, and each can be built with calls or puts.

How do I find the breakeven of a bull call spread?

Add the net debit to the lower strike price. The net debit is the premium of the bought call minus the premium of the sold call.

What market view does a butterfly spread express?

A long butterfly expresses a neutral view. You expect the price to finish near the middle strike. The maximum profit is at that strike and the loss is limited to the net debit.

What is a calendar spread?

It combines options of the same type and strike but different expiries. A common version sells the near-month option and buys the far-month option. It benefits from faster time decay of the near-month option.