A bull spread strategy can be constructed with both a call option contract and a put option contract, so should you choose a call option contract or a put option contract when constructing a bull spread strategy? Let's take a look at the difference between the bull call spread and the bull put spread and how they can be used.
Option sauce collated and released.
Analyze from the perspective of costs and benefits
Regardless of whether the strategy is constructed using a call option contract or a put option contract, the bull market spread is constructed in a way of "buy low and sell high", that is, ** option contracts with low strike price and sell option contracts with high strike price.
If a call option contract is structured, a low strike call option is typically more expensive than a high strike call option because it is closer to the real money and therefore incurs a net premium payout when the position is opened.
If a put option contract is structured, a low strike put option is usually cheaper than a high strike put option because it is closer to out-of-the-money and therefore generates a net premium income when the position is opened.
From the point of view of maturity returns, the returns of the bull call spread and the bull put spread are both maximized when the underlying ** exceeds the high strike price, but the maximum return of the call spread is equal to the difference between the two strike prices minus the net premium expense, and the maximum return of the put spread is the net premium income.
The bull call spread strategy is suitable for situations where investors expect the market to be modest**, but at the same time want to control the maximum losses.
This strategy is similar to an extension on the basis of a call option. Investors want to get a profit from the underlying asset, if they feel that it is more expensive to call an option alone.
You can choose to sell a high-strike, out-of-the-money call option at the same time to reduce costs and offset the effects of time value decay. In this way, when the underlying asset is ***, it will be in a profitable state after exceeding the breakeven point.
On the contrary,The bull put spread strategy is used when investors expect the market to move sideways or not significantly, but want to limit the maximum loss。This strategy can be seen as a variation of selling a put option. Although investors are bullish on the market outlook, they are also worried about the excessive risk of naked put options.
Therefore, choose to sell a put option near the out-of-the-money option and at the same time ** a more out-of-the-money put option to control the risk. As long as the underlying asset does not fall below the breakeven point at expiry, the strategy can be profitable.
The core idea of these two strategies is to balance cost and risk by simultaneously** and selling options contracts with different strikes based on the expected market movements, so as to achieve profitability under specific market conditions.