If you expect the stock price to rise rapidly in the future, but there is limited room for growth, you can use a bullish option spread strategy.

How to build

The bullish bullish option spread strategy consists of two options trades:

● Buy call 1

● Sell call 2

Except for the strike price of call1 being less than the strike price of call2, the underlying stock, quantity, and expiration date of both calls are the same.

Strategy brief

When you anticipate that the probability of a rapid rise in stocks is high, and there is limited room for growth, you can construct a bullish bullish option spread combination of “buying the current flat value call and selling an imaginary call using the pressure level as the exercise price”.

In this way, you can not only enjoy the benefits brought about by rising stocks, but also reduce the cost of buying a call by selling the portion of the call.

The spread of bullish options in a bull market is a combination with limited profit and loss:

When you use this strategy, if the stock doesn't rise as planned, the combined loss is limited and is the net option premium.

If the stock rises more than expected, the selling call will limit the room for growth. When the stock price rises to a higher exercise price, the combination makes the most profit. If the stock price continues to rise, it has nothing to do with you.

As far as volatility is concerned, bullish option spreads are based on “quick” expectations and are essentially a strategy to bullish future market volatility. In actual use, choosing to buy a call with low volatility and a call to sell with high volatility is a relatively good choice.

Furthermore, since the cost of buying a low option call 1 is generally greater than the income from selling a high option call 2, the net option premium is negative, so when the bullish option spread is initially constructed in a bullish market, the capital shows an expenditure state, so this strategy is also known as the bull market bullish option debit spread (Debit Call Spread).

Different fund book conditions will affect the use of margin. Although capital books will change quickly as stock prices change, this may not have much impact on small-capital traders, but traders or institutional traders with large capital investments will tend to consider the overall impact of this aspect.

Risks and benefits

● Break-even point

Stock price = low exercise price+net option premium

● Maximum profit

Maximum return = high exercise price - low exercise price - net option premium

● Maximum loss

Maximum loss = net option premium

Examples of calculations

Assuming that in the US stock market, TUTU's current stock price is 50 US dollars. You expect TUTU to rise slightly to 58 US dollars in the future, so you have created a bullish bullish options spread strategy:

Buy 1 call with an exercise price of 50 US dollars for 5 US dollars;

Sell 1 call with an exercise price of $58 for $2;

At maturity, your earnings will be as follows:

Remarks:

1. The article uses stocks as option targets to explain strategies. The actual investment bid can also be stock indices, futures contracts, bonds, currencies, etc.;

2. Unless otherwise specified, all options in this article refer to on-market options;

3. The TUTU company in the article is a virtual company;

4. None of the relevant calculations in the article take into account handling fees. In actual options investments, investors need to consider transaction fees