I am still confused by how the book is explaining the reason for the bull and bear call/put strategies.
Could anyone help me understand?
I am still confused by how the book is explaining the reason for the bull and bear call/put strategies.
Could anyone help me understand?
If you think the stock is going to go up, you take a bull spread. You limit your gains but limit your losses. You can take a credit bull (basically a reduced premium short put opton)spread or a debit bull spread (basically a reduced premium long call option)
Reverse that for the bear spreads.
There’s a lot more advanced strategy with spreads but that’s the basics.
That’s better.
If you had a strong conviction, you’d buy a call option.
But in a bear vs. bull spread, why would you go long on a lower strike call for the latter vs. the former. If you are taking a bear spread position. you are expecting the market to go down so id imagine you would want to go long the calll with a lower strike.
do the math , which premium is lower priced? The low or high strike call? The low or high strike put?
Look at the payoff diagrams:
Now, determine what combinations of options you need to get those payoff diagrams.