Bull spreads vs. bear spreads

 

May 13th, 2021

 

You think you might know a thing or two about options, but there's a lot of information that can help you become a great options investor. This week, we'll discuss what is a bull spread and a bear spread. What is a Bull Spread? A bull spread is an optimistic options strategy in which an investor profits from a moderate rise in the price of an asset. It involves the simultaneous purchase and sale of either call options or put options. The call and put options have different strike prices but they each have the same underlying asset and expiration date. The option with the lower strike price is bought and the one with the higher strike price is sold. Bull spreads come in two types: a bull call spread and a bull put spread. A bull call spread is a bull spread that uses call options. A bull put spread is a bull spread that uses put options. While both strategies involve collecting a premium on the sale of options, the bull call spread seeks profit when the options expire and the bull put spread collects money up front and holds on to as much money as possible when the options expire. What is a Bear Spread? A bear spread is used when an investor wants to maximize profit and minimize loss. This strategy would generally be applied when an investor isn't feeling too optimistic about an asset's trajectory. A bear spread involves the simultaneous purchase and sale of either call options or put options. The call and put options have the same strike prices but different expiration dates. Bear spreads achieve maximum profit if the assets close at or below the lower strike price. Keep following us for more insights and tips on how to become a seasoned trader.

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