Bull Spread

Double Bull Spread Strategy Highlights Motivation Profit from a rising stock price. Bullish Outlook Looking for rising stock price. Maximum Gain The maximum gain would occur should the underlying stock be above the upper call strike at expiration. Maximum Loss The maximum loss would occur should the underlying stock be below the lower put strike at expiration. Time Decay The passage of time will, all other things equal, generally have only a slight impact on this strategy. Volatility Impact An increase in implied volatility will, all other things equal, generally have only a slight impact on t...

slight impact on this strategy. Volatility Impact An increase in implied volatility will, all other things equal, generally have only a slight impact on this strategy. On This Page Description This strategy consists of being long one call and short another call with a higher strike, and short one put with a long put on a lower strike. Typically, the call strikes are above and the put strikes below the current level of underlying stock, and the distance between the call strikes equals the distance between the put strikes. All options must have the same expiration date. Outlook Looking for risin...

MAXIMUM GAIN High call strike - low call strike - net premium paid MAXIMUM LOSS High put strike - low put strike - net premium paid Max Loss The maximum loss would occur should the underlying stock be below the lower put strike at expiration. In that case, both puts would be in-the-money, and the loss would be the difference between the put strike prices plus or minus any premium paid or received from initiating the position. Max Gain The maximum gain would occur should the underlying stock be above the upper call strike at expiration. In that scenario, both calls would be in-the-money, and th...

between the lower call strike and upper put strike. If a premium was paid or received, then breakeven would occur where the underlying stock at expiration is above the lower call strike price by the premium paid or below the upper put by the premium paid. Volatility An increase in implied volatility will, all other things equal, generally have only a slight impact on this strategy. Whether the impact is positive or negative depends on which options are in-the-money or out-of-the-money, the time to expiration and level of interest rates. Time Decay The passage of time will, all other things equ...

spin-off or special dividend, could completely upset typical expectations regarding early exercise of options on the stock. Expiration Risk Yes. The investor cannot know for sure whether or not they will be assigned on a short option until the Monday after expiration. If unexpected exercise activity occurs, they could find themselves with a stock position on the Monday following expiration and subject to an adverse move in the stock over the weekend. Comments N/A Related Position Comparable Position: N/A Opposite Position: Double Bear Spread To Top