Can you profit from a stock's price jumping up or down?
Bull spread
Can you profit from a stock's price jumping up or down?
Imagine you're betting on a baseball game where you think the team will either win by a small margin or lose badly. You don't want to bet too much on winning, but you also don't want to miss out if they win by a small margin.
You decide to place a bet where you get a small bonus if the team wins by a small margin, but you don't risk losing much if they lose badly. This is like a bull spread in options trading.
Example
You bet 10 that the team will win by 3 runs or less. If they win by 3 runs or less, you get 15 back. If they lose badly, you lose just $10.
Remember this
A bull spread lets you profit from a moderate rise in the price of the underlying asset.
Text adapted from Wikipedia, licensed under CC BY-SA 4.0.
Related concepts
Strangle (options)
Can you profit from big price swings without betting on which way they'll go?
Straddle
Straddle strategy profits from large price movements in either direction
Prediction market
Why does betting on the future cost more to place than to take?
delta hedging does
How can you keep your money stable even when stock prices jump around?
implied volatility tells you
Ever wondered how traders predict stock swings?
Bid–ask spread
Bid-ask spread measures transaction costs and liquidity
Educational content, not financial advice.
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