1. Bull Call Spread
- Overview
Bull call spread is an options strategy where you buy Call A at a lower strike and sell Call B at a higher strike. Both options are on the same underlying asset and have the same expiration date. This strategy offers limited profit potential while also capping potential losses.
- Features
- Components
- Profit source
"Buying Call A" realizes the bullish expectation and earns the profit from the underlying stock's price increase; "Selling Call B" reduces the cost of "Buying Call A."
- Case study
Let's imagine a made-up company called TECH.
Right now, TECH's stock price is $100 per share. You think the stock price will show a moderate upward trend in the near future, but not a huge jump. So, you decide to build a Bull Call Spread strategy.
You buy one Call option with a lower strike price (Call A) of $100, paying a premium of $4, and at the same time, you sell one Call option with a higher strike price (Call B) of $110, receiving a premium of $1.5.
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2. Bull Put Spread
- Overview
Bull put spread is an options strategy where you buy Put A at a lower strike and sell Put B at a higher strike. Both options are on the same underlying asset and have the same expiration date. This strategy generates income upfront and has both a defined maximum profit and a defined maximum risk.
- Features
- Components
- Profit source
Selling Put B collects the premium, while buying Put A limits potential losses, resulting in a profit when the stock price rises.
- Case study
Let's imagine a made-up company called TECH.
Right now, TECH's stock price is $100 per share. You think the stock price will show a moderate upward trend in the near future, but not a huge jump. So, you decide to build a Bull Put Spread strategy.
You buy one Put option with a lower strike price (Put A) of $100, paying a premium of $3, and at the same time, you sell one Put option with a higher strike price (Put B) of $110, receiving a premium of $5.
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3. Bear Call Spread
- Overview
Bear call spread is an options strategy where you sell Call A at a lower strike and buy Call B at a higher strike. Both options are on the same underlying asset and have the same expiration date. This strategy offers limited profit potential while also capping potential losses.
- Features
- Components
- Profit source
Selling Call A collects the premium, while buying Call B limits potential losses, resulting in a profit when the stock price falls.
- Case study
Let's imagine a made-up company called TECH.
Right now, TECH's stock price is $190 per share. You think the stock price will show a moderate downward trend in the near future, but not a huge drop. So, you decide to build a Bear Call Spread strategy.
You sell a Call option (Call A) with a $190 strike, getting a $4 premium, and simultaneously buy a Call option (Call B) with a $200 strike, paying a $2 premium.
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4. Bear Put Spread
- Overview
Bear put spread is an options strategy where you sell Put A at a lower strike and buy Put B at a higher strike. Both options are on the same underlying asset and have the same expiration date. This strategy offers limited profit potential while also capping potential losses.
- Features
- Components
- Profit source
Buying Put B provides protection and generates profits when the stock price falls, while selling Put A collects the premium to offset the cost of buying Put B.
- Case study
Let's imagine a made-up company called TECH.
Right now, TECH's stock price is $80 per share. You think the stock price will show a moderate downward trend in the near future. So, you decide to build a Bear Put Spread strategy.
You sell a Put option (Put A) with an $80 strike, getting a $3 premium, and simultaneously buy a Put option (Put B) with a $90 strike, paying a $6 premium.
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Risk Warning
On option expiration day, before market close (11:00–14:00 EST), Longbridge will dynamically calculate the buying power required to exercise in-the-money or near-the-money options and adjust margin requirements accordingly. If your account has insufficient buying power, a margin call will be issued, which may lead to forced liquidation. If you hold an options strategy, Longbridge may liquidate the entire strategy at once, including all option contracts and the corresponding stock positions. Please plan your funds and positions in advance.