What is a Bull Spread?
It’s a simple combination of two options: you buy a call at the current price of the stock and you sell a call at your upside target price. That strategy means that if the stock goes up, you’ll make money… but the amount you can lose is limited. The call you sold not only earns you a bit of change, but it cuts your risk short. Let’s look at a sample trade to see how this works. Here’s what I mean about using bull spreads with an expensive stock… Let’s say you are hot on Amazon.com. You love the stock, but it’s expensive. You could buy a call option for a fraction of the price of the stock, but even that fraction is very expensive. That’s the time to look at a bull spread. The first step is to figure out how much you are trying to make (your target exit point) because that’s the strike price you are going to use on the call you will sell. But before we get that far, let’s look at how a regular stock trade might work out for you so we see how much better the bull spread is. Anatomy of a
The bull spread is an investing strategy that is designed to help the investor realize a significant profit from the rise of the price of a given set of securities. The opposite of a bear spread, the bull spread is created by choosing to engage in purchasing at the point of a lower strike price and then selling at a time when the strike price is significant higher. In order to lay the groundwork for a bull spread, it is necessary to purchase two futures contracts that are composed of either the same commodities, or commodities that are related in some manner. Along with purchasing a set of commodities that are related to one another, a bull spread also involves making sure that the purchase occurs at the same time. Ideally, the creation of a bull spread establishes a situation that will ultimately be very profitable for the investor. If the futures perform in a manner that result in each futures contract rising in price, then the main consideration is to accurately determine the right
A bull spread is an option combination designed to profit from rising stock prices. If you anticipate a rise in a stock price, you buy a call option with an exercise price below the market stock price, and you sell a call option with an exercise price above the market stock price. Both calls are on the same stock and have the same expiration date. You use the premium received on the option sold to offset the premium paid on the option bought. Hopefully, the stock price rises enough so you can exercise the option bought — but not quite enough so you have to honor the obligation on the option sold, so you can pocket the premium as a profit.
