Bull spread
A bull spread ( bull spread and bullish vertical spread ) is an option strategy with which one speculates on an increase in the price of the underlying asset . The underlying is often an index , but any other underlying can be used.
To construct a bull spread, you buy a call option (you take the long call position) and at the same time you sell a call option (you take the short call position). As a rule, the exercise date of the two options is the same, but the long call position has a lower exercise price than the short call position.
A bull spread can also consist of two put options construct all other properties of the options remain the same.
With this strategy, a profit is made by increasing the price of the underlying asset. However, the profit only increases until the price of the base value reaches the higher of the two exercise prices. Further rising prices do not bring any further profit. The loss is also limited. This no longer increases when the price of the underlying falls below the lower of the two exercise prices. The maximum loss means the total loss of the option premium paid for the long position, minus the option premium received for the short position.
The opposite of a bull spread is a bear spread .