BULL SPREAD

Summary

A bull spread is an options trading strategy designed to profit when you expect a security's price to rise moderately. It involves buying and selling options with different strike prices or expiration dates, creating a position that gains value as the underlying asset's price increases. The 'bull' name comes from the bullish (optimistic) market outlook required for the strategy to be profitable. Common types include bull call spreads (buying a lower strike call and selling a higher strike call) and bull put spreads (selling a higher strike put and buying a lower strike put).

Usage Context

Essential when learning options strategies, risk management, and directional trading strategies. Important for understanding how to profit from moderate price increases while limiting both risk and reward.

Common Confusions

• Confusing bull spreads with bear spreads due to similar construction
• Not understanding that bull spreads have limited profit potential
• Mixing up which option to buy vs. sell in different bull spread types
• Thinking bull spreads always require paying a premium upfront
• Assuming bull spreads work well in highly volatile markets