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Options Analysis: Bull Put vs. Bull Call

August 13, 2014

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When trading options you have lots of strategy choices available. Two of the more popular strategies for bullish stocks are bull put spreads and bull call spreads. These strategies are lumped into the family of ‘vertical’ spreads and are nearly identical in their theoretical reward, risk, and behavioral expectations. What makes them different is when a trader builds them with different delta’s. In this article, I’m going to describe the different characteristics between the Debit Vertical and Credit Vertical when you follow traditional rules.

What is a Bull Put Spread?

A Bull Put Spread is built by selling a put option and then buying a lower strike put option in the same expiration month. The structure of the trade is by definition a credit spread. Credit spreads require margin to make the trade, the appropriate trading level from your broker to begin with, and a margin trading account. When you trade a credit spread you receive money upfront, thus you have limited profit potential. Your risk is limited as well.

What is a Bull Call Spread?

A Bull Call Spread is built by buying a call option and then selling a higher strike call in the same expiration month. The structure of the trade is a net debit which means you spend money to buy it. Trading Bull Call Spreads requires a margin account, options trading authority, and the appropriate trading level.

Simply stated, the bull put spread has a lower reward but has a higher probability to actually succeed. Whereas, the bull call spread has a higher reward but is lower actual probability of succeeding.


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3 Replies to “Options Analysis: Bull Put vs. Bull Call”

  1. Syed Mateen says:

    very good explanation and analysis, Thanks Tim

  2. ASHISHVAIDYA says:

    Particularly loved analogy at conclusion

  3. DavidRoyar says:

    Tim this article is really written to where I understand very clear. Placing a trade as we speak.

    Thanks for all you do.

Comments are closed.

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