What is bull/bear spread?
The bull spread is used to reduce the risk potential for a profit; a bear spread is used to try to reduce losses and maximize profit when prices are declining. There are two types of options used in bull and bear spreads—a call option, or the option to buy; and a put option, or an option to sell.
How do you calculate a bull call spread?
How To Calculate The Max Profit. The max profit for a bull call spread is as follows: Bull Call Spread Max Profit = Difference between call option strike price sold and call option strike price purchased – Premium Paid for a bull call spread.
How is Bear spread calculated?
A bear put spread is achieved by purchasing put options while also selling the same number of puts on the same asset with the same expiration date at a lower strike price. The maximum profit using this strategy is equal to the difference between the two strike prices, minus the net cost of the options.
What is a bull spread option strategy?
A bull call spread is an options trading strategy designed to benefit from a stock’s limited increase in price. The strategy uses two call options to create a range consisting of a lower strike price and an upper strike price. The bullish call spread helps to limit losses of owning stock, but it also caps the gains.
What’s the difference between a bull and bear spread?
The bear spread is used by a bearish trader. This is similar in nature to the bull spread but uses a strategy for the belief that prices will continue to drop. The bear spread is built by selling a call option with a strike price, and then buying a call option at a higher strike price.
Which is the best definition of a bull call spread?
A bull call spread is an options strategy designed to benefit from a stock’s limited increase in price. The strategy limits the losses of owning a stock, but also caps the gains. A bull put spread is an income-generating options strategy that is used when the investor expects a moderate rise in the price of the underlying asset.
What kind of strategy is a bear spread?
What is a ‘Bear Spread’. A bear spread is an option strategy that will profit when the price of the underlying security declines. The strategy involves the simultaneous purchase and sale of options, where either puts or calls can be used.
How do you do a bear call spread?
A bear call spread is achieved by purchasing call options at a specific strike price while also selling the same number of calls with the same expiration date, but at a lower strike price. The maximum profit to be gained using this strategy is equal to the credit received when initiating the trade.
