The bull spread is an investing strategy that is designed to help the investor realize a significant profit from the rise of the price of a given set of securities. The opposite of a bear spread, the bull spread is created by choosing to engage in purchasing at the point of a lower strike price and then selling at a time when the strike price is significant higher.
In order to lay the groundwork for a bull spread, it is necessary to purchase two futures contracts that are composed of either the same commodities, or commodities that are related in some manner. Along with purchasing a set of commodities that are related to one another, a bull spread also involves making sure that the purchase occurs at the same time.
Ideally, the creation of a bull spread establishes a situation that will ultimately be very profitable for the investor. If the futures perform in a manner that result in each futures contract rising in price, then the main consideration is to accurately determine the right time to sell the futures. As with just about every option strategy, the degree of success achieved with a bull spread is all about timing. Once the right combination of futures are secured, holding them until just before the price levels and perhaps begins to descend will ensure that the maximum amount of profit is generated by the bull spread.
As one of the more common examples of an options spread, the bull spread is a simple but effective strategy that relies on making informed choices about purchases, holding them until the time to sell is right, and then reinvesting some of the profits in a new venture. While the bull spread has a great deal of potential to make a lot of money, one other advantage to the strategy has to do with limiting the loss factor. With a bull spread, it is possible for the investor to sell the futures at a break-even point or at a minimal loss in the event that the futures do not perform in the manner anticipated at the time of purchase.