While you may have heard the terms “bull market” and “bear market”, most people do not know what the terms actually refer to. In some cases, these terms are referring to the options market and not to the stock market directly. The bull spread, for example, has to do with what the trend is for options.
Bull spreads are good for people who think that the prices of the underlying stock are going to go up. In this case, the important thing is which stock you’re planning on picking. Therefore, options with the lowest strike price are more likely to be purchased, and the options that have high strike prices are not very popular. If you think that the market is going to be bullish, then you should hurry up and sell the options you have with high strike prices.
Another thing that you should do in a bull spread is pretty obvious once you know that first part. You need to start looking for options that have lower strike prices and buying those up. That way, when the stock market does go bullish, you’ll stand to make a lot of money on your stock options.
The nice thing about stock options is that if you are wrong about whether or not the market is going to go bullish or bearish, then you still have a chance to cut some of your losses. Just so long as you have been trading in stock options instead of in the actual stock, you should have a very limited loss.
Remember, the difference between bullish and bearish is that when you think that the market is going to be bullish, you are saying that the prices of stock are going to go up. If you think that the market is going to go down, and that stock prices are going to decrease as well, then you should think about a bear spread instead.
The other nice thing about trading on a bull spread is that you stand to make a lot of money when the stock market does go up – without putting as much money on the line.