Full Spread

Full Spread
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How easy ’tis, when destiny proves kind, With full-spread sails to run before the wind; But those that ’gainst stiff gales laveering go, Must be at once resolv’d and skilful too.
Dryden.
The numerical value of full spread in Chaldean Numerology is: 7
The numerical value of full spread in Pythagorean Numerology is: 6
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"full spread." Definitions.net. STANDS4 LLC, 2022. Web. 7 Sep. 2022. < https://www.definitions.net/definition/full+spread >.

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A bull spread is an optimistic options strategy used when the investor expects a moderate rise in the price of the underlying asset. Bull spreads come in two types: bull call spreads, which use call options, and bull put spreads, which use put options. Bull spreads involve simultaneously buying and selling options with the same expiration date on the same asset, but at different strike prices. Bull spreads achieve maximum profit if the underlying asset closes at or above the higher strike price.

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Butterfly spread is an options strategy combining bull and bear spreads, involving either four calls and/or puts, with fixed risk and capped profit.

A Christmas tree is a complex options trading strategy achieved by buying and selling six call options with different strikes for a neutral to bullish forecast.

An iron condor involves buying and selling calls and puts with different strike prices when a trader expects low volatility.

Options are financial derivatives that give the buyer the right to buy or sell the underlying asset at a stated price within a specified period.

A bull vertical spread requires the simultaneous purchase and sale of options with different strike prices, but of the same class and expiration date.

A collar, commonly known as a hedge wrapper, is an options strategy implemented to protect against large losses, but it also limits large gains.

Credit Spread vs. Debit Spread: What's the Difference?

Which Vertical Option Spread Should You Use?

How To Buy Options On the Dow Jones

Strategies for Trading Volatility With Options

Understanding Bull Spread Option Strategies

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James Chen, CMT is an expert trader, investment adviser, and global market strategist. He has authored books on technical analysis and foreign exchange trading published by John Wiley and Sons and served as a guest expert on CNBC, BloombergTV, Forbes, and Reuters among other financial media.
Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas' experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning.
Kirsten Rohrs Schmitt is an accomplished professional editor, writer, proofreader, and fact-checker. She has expertise in finance, investing, real estate, and world history. Throughout her career, she has written and edited content for numerous consumer magazines and websites, crafted resumes and social media content for business owners, and created collateral for academia and nonprofits. Kirsten is also the founder and director of Your Best Edit; find her on LinkedIn and Facebook.

A bull spread is an optimistic options strategy designed to profit from a moderate rise in the price of a security or asset. A variety of vertical spread, a bull spread involves the simultaneous purchase and sale of either call options or put options with different strike prices but with the same underlying asset and expiration date . Whether a put or a call, the option with the lower strike price is bought and the one with the higher strike price is sold.

A bull call spread is also called a debit call spread because the trade generates a net debt to the account when it is opened. The option purchased costs more than the option sold. 1

If the strategy uses call options, it is called a bull call spread . If it uses put options, it is called a bull put spread . The practical difference between the two lies in the timing of the cash flows . For the bull call spread, you pay upfront and seek profit later when it expires. For the bull put spread, you collect money upfront and seek to hold on to as much of it as possible when it expires.

Both strategies involve collecting a premium on the sale of the options, so the initial cash investment is less than it would be by purchasing options alone. 1

Since a bull call spread involves writing a call option for a higher strike price than that of the current market in long calls, the trade typically requires an initial cash outlay. The investor simultaneously sells a call option, aka a short call, with the same expiration date; in so doing, he gets a premium, which offsets the cost of the first, long call he wrote to some extent.

The maximum profit in this strategy is the difference between the strike prices of the long and short options less the net cost of the options—in other words, the debit. The maximum loss is only limited to the net premium (debit) paid for the options.

A bull call spread's profit increases as the underlying security's price increases up to the strike price of the short call option. Thereafter, the profit remains stagnant if the underlying security's price increases beyond the short call's strike price.

Conversely, the position would have losses as the underlying security's price falls, but the losses remain stagnant if the underlying security's price falls below the long call option's strike price.

A bull put spread is also called a credit put spread because the trade generates a net credit to the account when it is opened. The option purchased costs less than the option sold.

Since a bull put spread involves writing a put option that has a higher strike price than that of the long call options, the trade typically generates a credit at the start. The investor pays a premium for buying the put option but also gets paid a premium for selling a put option at a higher strike price than that of the one he purchased.

The maximum profit using this strategy is equal to the difference between the amount received from the sold put and the amount paid for the purchased put—the credit between the two, in effect. The maximum loss a trader can incur when using this strategy is equal to the difference between the strike prices minus the net credit received.

Bull spreads are not suited for every market condition. They work best in markets where the underlying asset is rising moderately and not making large price jumps.

As mentioned above, the bull call limits its maximum loss to the net premium (debit) paid for the options. The bull call also caps profits up to the strike price of the short option.

The bull put, on the other hand, limits profits to the difference between what the trader paid for the two puts—one sold and one bought. Losses are capped at the difference between strike prices less the total credit received at the creation of the put spread.

By simultaneously selling and buying options of the same asset and expiration but with different strike prices the trader can reduce the cost of writing the option.

Risk of short-call buyer exercising option (bull call spread)

Both strategies achieve maximum profit if the underlying asset closes at or above the higher strike price. Both strategies result in a maximum loss if the underlying asset closes at or below the lower strike price .

Breakeven, before commissions , in a bull call spread occurs at (lower strike price + net premium paid).

Breakeven, before commissions, in a bull put spread occurs at (upper strike price - net premium received).

Let's say a moderately optimistic trader wants to try doing a bull call spread on the Standard & Poor's 500 Index (SPX). The Chicago Board Options Exchange (CBOE) offers options on the index.

Assume the S&P 500 is at 4402. The trader purchases one two-month SPX 4400 call for a price of $33.75, and at the same time sells one two-month SPX 4405 call and receives $30.50. The total net debit for the spread is $33.50 – $30.75 = $2.75 x 100 contract multiplier = $275.00.

By purchasing the bull call spread the investor is saying that by the expiration he anticipates the SPX index to have risen moderately to a level above the break-even point: 4400 strike price + $2.75 (the net debit paid), or an SPX level of 4402.75. The investor’s maximum profit potential is limited: 4405 (higher strike) – 4400 (lower strike) = $5.00 – $2.75 (net debit paid) = $2.25 x $100 multiplier = $225 total.

This profit would be seen no matter how high the SPX index has risen by expiration. The downside risk for the bull call spread purchase is limited entirely to the total $275 premium paid for the spread no matter how low the SPX index declines.

Before expiration, if the call spread purchase becomes profitable the investor is free to sell the spread in the marketplace to realize this gain. On the other hand, if the investor’s moderately bullish outlook proves incorrect and the SPX index declines in price, the call spread might be sold to realize a loss less than the maximum.

Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.

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