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.
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- Bear spread, derivative, In-the-money, Options chain, Out-of-the-money, Strangle, Underlying instrument, Value
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