Bull and Bear Spreads in Options

What are bull and bear spreads in options?

Bull and bear spreads are directional option strategies that involve buying and selling options at different strike prices but with the same expiry. These spreads help traders limit risk and define reward based on their market view.

What Is a Bull Spread?

A Bull Spread is used when the trader expects a moderate rise in the price of the underlying asset. It typically involves:

  • Buying a call option at a lower strike price
  • Selling a call option at a higher strike price

Example:
Sarah buys a call at ₹40 and sells another at ₹50.
She profits if the asset moves upward—but gains are capped beyond ₹50.

What Is a Bear Spread?

A Bear Spread is used when a trader expects a moderate decline in price. It usually involves:

  • Buying a put option at a higher strike price
  • Selling a put option at a lower strike price

Example:
Sarah buys a put at ₹40 and sells another at ₹30.
She profits if the asset drops—but her gains are capped below ₹30.

Key Differences

FeatureBull SpreadBear Spread
Market ViewModerately bullishModerately bearish
Instruments UsedCall options (or puts)Put options (or calls)
Max ProfitDifference in strikes – net premiumDifference in strikes – net premium
Max LossNet premium paidNet premium paid

What if...

ScenarioOutcome
Asset rises moderately in a bull spreadLimited profit within strike range
Asset falls sharply in a bear spreadMax profit if it drops below sold strike
Asset remains flatBoth spreads may lose premium, depending on setup
Tip: Bull and bear spreads are ideal when you're confident about direction but want limited risk exposure.

Last updated: 27 Jun 2025

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