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
| Feature | Bull Spread | Bear Spread |
|---|
| Market View | Moderately bullish | Moderately bearish |
| Instruments Used | Call options (or puts) | Put options (or calls) |
| Max Profit | Difference in strikes – net premium | Difference in strikes – net premium |
| Max Loss | Net premium paid | Net premium paid |
What if...
| Scenario | Outcome |
|---|
| Asset rises moderately in a bull spread | Limited profit within strike range |
| Asset falls sharply in a bear spread | Max profit if it drops below sold strike |
| Asset remains flat | Both 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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