MM Mock #3, question 4A (AM) Bull spread to protect against unexpected decrease.

I just did Mark Meldrum’s Mock #3 and I don’t understand the explanation for question 4A in the AM session.

As per the explanation, the investor would choose a bull spread if he believed that the share price would increase but wanted to protect against an unexpected decrease.

Whether a Bull Put Spread or Bull Call Spread is used, I do not understand how the downside is protected.

The only explanation I have come up with is to assume that a put option has been sold…in that case, buying a put option below the short put strike would me the strategy into a Bull Put Spread and the long put would effectively protect the downside.

However, I think this is quite far-fetched logic.

The downside protection doesnt have to do with the difference between a bull put spread or a bull call spread… they do the same thing (although one is a credit spread and one is a debit spread – they both have known max profits and max loses up front)

I dont have the question in front of me, but in general, the bull spread is used if you think the market is going to go up to a certain degree. It protects your downside because your maximum lose is known – here it is the premium you paid for the spread.

Because the max loss is known and is likely a small amount versus buying the underlying, you are protected against an unexpected decrease, to an extent.

Like I said, I dont have the question so that’s my assumption.

The payoff on a bull spread looks like this: _/¯. The downside protection is this part: _.