# Bull Spread Option Strategy: Understanding Calls, Puts, and Profit Techniques

## What Is a Bull Spread?

A bull spread is an options trading strategy aimed at profiting from a moderate rise in the price of an underlying asset while limiting risk. It's a type of [vertical spread](https://www.investopedia.com/terms/v/verticalspread.asp) that involves buying one option and selling another of the same type, either calls or puts, with the same [expiration date](https://www.investopedia.com/terms/e/expirationdate.asp) but different strike prices. The option with the lower strike price is bought, and the one with the higher strike price is sold, which reduces the overall cost of the position.

There are two main types: bull call spreads, which typically result in a net [debit](https://www.investopedia.com/terms/d/debitspread.asp), and bull put spreads, which generate a net credit. Both approaches cap potential profits but also help manage risk, making them popular among traders seeking a more balanced strategy.

### Key Takeaways

*   Bull spreads are options strategies that profit from a moderate rise in an asset's price.
*   Two types of bull spreads exist: bull call spreads and bull put spreads.
*   Bull spreads have built-in risk management, capping both potential profit and loss.
*   Maximum profit occurs if the asset closes at or above the higher strike price.
*   Bull spreads work best in moderately rising markets, limiting gains and reducing potential losses.

## Understanding Bull Spreads: Bull Call vs. Bull Put

If the strategy uses call options, it is called a [bull call spread](https://www.investopedia.com/terms/b/bullcallspread.asp). If it uses put options, it is called a [bull put spread](https://www.investopedia.com/terms/b/bullputspread.asp). The practical difference between the two lies in the timing of the [cash flows](https://www.investopedia.com/terms/c/cashflow.asp). For the bull call spread, you pay upfront and seek profit later when it expires. For the bull put spread, you collect money upfront and seek to hold on to as much of it as possible when it expires.

Both strategies collect a premium from selling options, making the initial investment lower than just buying options.

## Bull Call Spreads Explained: Mechanisms and Benefits

Since a bull call spread involves writing a [call option](https://www.investopedia.com/terms/c/calloption.asp) for a higher strike price than that of the current market in long calls, the trade typically requires an initial cash outlay. The investor simultaneously sells a call option, aka a short call, with the same expiration date; in so doing, he gets a premium, which offsets the cost of the first, long call he wrote to some extent.

The maximum profit in this strategy is the difference between the strike prices of the long and short options less the net cost of the options—in other words, the debit. The maximum loss is only limited to the net [premium](https://www.investopedia.com/terms/p/premium.asp) (debit) paid for the options.

A bull call spread's [profit](https://www.investopedia.com/terms/p/profit.asp) increases as the underlying security's price increases up to the strike price of the [short call](https://www.investopedia.com/terms/s/short-call.asp) option. Thereafter, the profit remains stagnant if the underlying security's price increases beyond the short call's strike price.

Conversely, the position would have losses as the underlying security's price falls, but the losses remain stagnant if the underlying security's price falls below the long call option's strike price.

## Bull Put Spreads: How They Work and Potential Gains

A bull put spread is also called a [credit put spread](https://www.investopedia.com/terms/c/creditspread.asp) because the trade generates a net credit to the account when it is opened. The option purchased costs less than the option sold.

Since a bull put spread involves writing a [put option](https://www.investopedia.com/terms/p/putoption.asp) that has a higher strike price than that of the long call options, the trade typically generates a credit at the start. The investor pays a premium for buying the put option but also gets paid a premium for selling a put option at a higher strike price than that of the one he purchased.

The maximum profit is the difference between what you receive from the sold put and what you pay for the purchased put. The maximum loss a [trader](https://www.investopedia.com/terms/t/trader.asp) can incur when using this strategy is equal to the difference between the strike prices minus the net credit received.

## Bull Spread Strategies: Evaluating Pros and Cons

Bull spreads are not suited for every market condition. They work best in markets where the underlying asset is rising moderately and not making large price jumps. 

As mentioned above, [the bull call limits its maximum loss](https://www.investopedia.com/articles/active-trading/072915/understanding-bull-spread-option-strategies.asp) to the net premium (debit) paid for the options. The bull call also caps profits up to the strike price of the short option.

The bull put, on the other hand, limits profits to the difference between what the trader paid for the two puts—one sold and one bought. Losses are capped at the difference between strike prices less the total credit received at the creation of the put spread.

Buying and selling options with the same expiration but different strike prices helps reduce costs for traders.

Pros

*   Limits losses
    
*   Reduces costs of option-writing
    
*   Works in moderately rising markets
    

Cons

*   Limits gains
    
*   Risk of short-call buyer exercising option (bull call spread)
    

## Calculating Profit and Loss in Bull Spread Strategies

Both strategies achieve maximum profit if the underlying asset closes at or above the higher strike price. Both strategies result in a maximum loss if the underlying asset closes at or below the lower [strike price](https://www.investopedia.com/terms/s/strikeprice.asp).

Breakeven, before [commissions](https://www.investopedia.com/terms/c/commission.asp), in a bull call spread occurs at (lower strike price + net premium paid).

For a bull put spread, breakeven before commissions is the upper strike price minus the net premium received.

## Example: Applying Bull Spread Strategies

Let's say a moderately optimistic trader wants to try doing a bull call spread on the Standard & Poor's 500 Index (SPX). The Chicago Board Options Exchange (CBOE) offers options on the index.

Assume the S&P 500 is at 4402. The trader purchases one two-month SPX 4400 call for a price of $33.75, and at the same time sells one two-month SPX 4405 call and receives $30.50. The total net debit for the spread is $33.50 – $30.75 = $2.75 x 100 contract multiplier = $275.00.  

By purchasing the bull call spread the investor is saying that by the expiration he anticipates the SPX index to have risen moderately to a level above the break-even point: 4400 strike price + $2.75 (the net debit paid), or an SPX level of 4402.75. The investor’s maximum profit potential is limited: 4405 (higher strike) – 4400 (lower strike) = $5.00 – $2.75 (net debit paid) = $2.25 x $100 multiplier = $225 total.

This profit would be seen no matter how high the SPX index has risen by expiration. The downside risk for the bull call spread purchase is limited entirely to the total $275 premium paid for the spread no matter how low the SPX index declines.

Before expiration, if the call spread purchase becomes profitable the investor is free to sell the spread in the marketplace to realize this gain. On the other hand, if the investor’s moderately bullish outlook proves incorrect and the SPX index declines in price, the call spread might be sold to realize a loss less than the maximum.  

## What Is the Difference Between a Bull Spread and a Bear Spread?

A bull spread is an options trading strategy that predicts a price increase in the underlying security. The trader realizes a profit if the price closes at or above the anticipated price. If the price of the security decreases, the trader's losses should be limited if the spread is well executed.

## What Is the Most Aggressive Type of Bull Spread?

In a bull call spread, the options trader buys a call option for certain security and sells another call with a higher strike price. The most aggressive bull spreads are those where both calls are initially out-of-the-money because OTM calls tend to be cheaper (and riskier) than in-the-money calls.

## Is a Bull Call Spread a Good Strategy?

A well-executed bull spread can provide reliable profits while reducing the trader's exposure to losses. However, a bull spread is not suitable for every market. This strategy has the biggest advantages if the underlying is moderately trending upwards. If the underlying is increasing in large, sudden jumps, a bull spread strategy could miss out on potential profits.

## The Bottom Line

A bull spread is designed to profit from a moderate rise in an asset's price while controlling risk. Traders can use either a bull call spread, buying a call at a lower strike and selling one at a higher strike, or a bull put spread, which involves selling a higher-strike put and buying a lower-strike put.

Both strategies cap potential profits at the higher strike price but also limit losses to the net premium paid or received. Bull spreads work best in moderately bullish markets, offering a balanced approach for traders who want to manage risk rather than chase large price swings.

> **Article Sources**
>
> 1.  Fidelity. "[Bull Call Spread](https://www.fidelity.com/learning-center/investment-products/options/options-strategy-guide/bull-call-spread)."