YouTube T3-38: Vertical option spread trades: bull spread and bear spread

[Nicole Seaman]

A vertical spread trade takes a position in two or more options of the same type (i.e., two or more calls, or two or more puts). Both the bull and bear spread are capped on the upside. The BULL SPREAD buys a call with a lower strike price partially funds the purchase by writing (ie, selling) a call with a higher strike price; if the bull spread is created with puts, then it generates an initial cash inflow. The BEAR spread buys a put with a higher strike price and partially funds it by writing (ie, selling) a put with a lower strike price; if the bear spread is created with calls, then it generates an initial cash inflow.

David's XLS is here: https://www.dropbox.com/s/roya65do0y892lt/101718-trades-spread-v2.xlsx

 

[thienluong]

Dear sir, does the option premium magnitude play an important role in deciding the profit shape of the bull/bear spread? For example, in the case of Bull spread with calls, if the received premium of short call increases to enough offset or even exceed the paid premium of long call, the strategy would end up in profit in both sides of the stock movement.

Am i right with my intuition? Thanks a lot!