Bull Spread

A bull spread is an options strategy built from two options of the same type (either two calls or two puts) on the same underlying, with the same expiration date but different strike prices. It is designed to make money if the price of the underlying stock or asset rises, but with both the potential profit and potential loss capped at a known amount from the moment you open the trade.

Here is how it works with calls, the more common version. A trader buys a call option at a lower strike price and sells a call option at a higher strike price, both expiring on the same date. Buying the lower-strike call gives the right to buy the stock cheaply if it rises; selling the higher-strike call brings in some premium (money received for selling the option) that offsets the cost of the one bought, but it also caps how much profit is possible, because if the stock climbs past that higher strike, the gains on the long call get offset by losses on the short call. The same structure can be built with puts instead of calls, and it still profits from a rise in price, just through a different combination of rights and obligations.

The nuance that trips people up is that "bull" describes the market direction the trade wants, not which option was bought or sold. A bull spread can be built two ways: paying net premium upfront (a debit) using calls, or collecting net premium upfront (a credit) using puts. Both make money if the underlying rises and both have a maximum gain and maximum loss fixed by the distance between the two strike prices minus (or plus) whatever premium changed hands. Because the position is capped both ways, it is fundamentally different from simply buying a single call outright, which has unlimited upside and only costs what you paid for it.

People sometimes confuse a bull spread with just "being bullish" through any options trade. It specifically refers to this two-leg, same-expiration, defined-risk structure, not to any directional bet made with options.