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Bull spread

This strategy can be implemented using either call options or put options.

Using calls, the strategy is a long position in a call with strike price X1 combined with a short position in a call with strike price X2, where X1 is less than X2. Both options have the same expiration date. A bull spread created from calls requires an initial investment.

Using puts, the strategy is a long position in a put with strike price X1 combined with a short position in a put with strike price X2, where X1 is less than X2. A bull spread created with puts involves a positive cash flow to the up front and payoff that is either negative or zero.

Upside potential and downside risk are both limited.

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Steven Huddart
Smeal College of Business, Penn State University, University Park, PA 16802-3603 USA
(814) 865-3271
(814) 863-8393 fax
huddart@psu.edu
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was last updated on Wed, Oct 7, 2009.
Today is Fri, Nov 27, 2009.

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