Ask the Institute

DATE: June 23, 2014

QUESTION:

Can you explain how a Bull Credit Spread strategy works?

ANSWER:
A Bull Credit Spread strategy is created by selling a put with a higher strike price and buying a put with a lower strike price. These puts would have the same underlying stock and the same expiration date. A Bull Credit Spread is established for a net credit and has both limited profit potential and limited risk.

This strategy is considered neutral to bullish, so a trader should make sure their market forecast is consistent with how a Bull Credit Spread strategy makes money before placing the trade. To learn more about the Bull Credit Spread strategy, view this segment of "Ask the Institute."