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+Chapter 7: Bull Spreads 177 
+time to maturity than the short call has. Such a position is known as a diagonal bull 
+spread and is discussed in a later chapter. 
+Experienced traders often tum to bull spreads when options are expensive. The 
+sale of the option at the higher strike partially mitigates the cost of buying an expen­
+sive option at the lower strike. However, one should not always use the bull spread 
+approach just because the options have a lot of time value premium, for he would be 
+giving up a lot of upside profit potential in order to have a hedged position. 
+With most types of spreads, it is necessary for some time to pass for the spread 
+to become significantly profitable, even if the underlying stock moves in favor of the 
+spreader. For this reason, bull spreads are not for traders unless the options involved 
+are very short-term in nature. If a speculator is bullishly oriented for a short-term 
+upward move in an underlying stock, it is generally better for him to buy a call out­
+right than to establish a bull spread. Since the spread differential changes mainly as 
+a function of time, small movements in price by the underlying stock will not cause 
+much of a short-term change in the price of the spread. However, the bull spread has 
+a distinct advantage over the purchase of a call if the underlying stock advances mod­
+erately by expiration. 
+In the previous example, a bull spread was established by buying the XYZ 
+October 30 call for 3 points and simultaneously selling the October 35 call for 1 point. 
+This spread can be compared to the outright purchase of the XYZ October 30 alone. 
+There is a short-term advantage in using the outright purchase. 
+Example: The underlying stock jumps from 32 to 35 in one day's time. The October 
+30 would be selling for approximately 5½ points if that happened, and the outright 
+purchaser would be ahead by 2½ points, less one option commission. The long side 
+of the bull spread would do as well, of course, since it utilizes the same option, but 
+the short side, the October 35, would probably be selling for about 2½ points. Thus, 
+the bull spread would be worth 3 points in total (5½ points on the long side, less 2½ 
+points loss on the short side). This represents a 1-point profit to the spreader, less two 
+option commissions, since the spread was initially established at a debit of 2 points. 
+Clearly, then, for the shortest time period one day - the outright purchase outper­
+forms the bull spread on a quick rise. 
+For a slightly longer time period, such as 30 days, the outright purchase still has 
+the advantage if the underlying stock moves up quickly. Even if the stock should 
+advance above 35 in 30 days, the bull spread will still have time premium in it and 
+thus will not yet have reached its maximum spread potential of 5 points. Recall that 
+the maximum potential of a bull spread is always equal to the difference between the 
+striking prices. Clearly, the outright purchaser will do very well if the underlying 
+stock should advance that far in 30 days' time. When risk is considered, however, it