Bull spread

Bull spread

A spread strategy used in options and futures trading that is designed to capitalize on expected price appreciation. A bull spread using call options is created by buying a call option on an asset with a certain strike price and selling a call option on the same asset with a higher strike price (same expiration date). A bull spread with put options is created by buying a put option with a low strike and selling a put option with a high strike price (same expiration date). Less frequently, the bull spread is implemented by buying the nearby futures contract and selling the next out contract.

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bull spread

In futures and options trading, a strategy in which one contract is bought and a different contract is sold in such a manner that the person undertaking the spread makes a profit if the price of the underlying asset rises. Two contracts are used in order to limit the size of the potential loss. Compare bear spread.

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Bull spread. A bull spread is an options strategy that you use when you anticipate an increase in the price of the underlying instrument, such as a stock or an index.

As in any spread, you purchase one option and write another on the same underlying item. Both options are identical except for one element, such as the strike price or the expiration date.

For example, with a vertical bull call spread, you buy a call with a lower strike price and sell a call with a higher strike price. With a vertical bull put, you buy a put at a lower price and sell a put at a higher price.

In either case, if you're right about the behavior of the underlying instrument, you could have a net profit. For example, you would make money if a stock whose price you expect to increase does gain value. If you're wrong, you could have a net loss cushioned by the income from the sale of one of the legs of the spread.