5.3. Hedging with Spreads

If straddles and strangles are called combinations because they combine the use of calls and puts, spreads are the use of two or more options of the same type, either a long and short call or a long and short put.

A call spread is the purchase and sale of call options at a different strike price. If you buy a call with a lower strike price than the strike price of the call you write, it is called a long call spread, or a bull call spread. Remember that for call spreads, you are bullish if you are long the lower strike price. If the call you write has the lower strike price, it is called a short call spread, or alternatively, a bear call spread.

A put spread is the purchase and sale of put options at a different strike price. If the put you buy has a higher strike price than the put you write, it is called a&n