Chapter 7: Bull Spreads 175 
DEGREES OF AGGRESSIVENESS 
AGGRESSIVE BULL SPREAD 
Depending on how the bull spread is constructed, it may be an extremely aggressive 
or more conservative position. The most commonly used bull spread is of the aggres­
sive type; the stock is generally well below the higher striking price when the spread 
is established. This aggressive bull spread generally has the ability to generate sub­
stantial percentage returns if the underlying stock should rise in price far enough by 
expiration. Aggressive bull spreads are most attractive when the underlying common 
stock is relatively close to the lower striking price at the time the spread is established. 
A bull spread established under these conditions will generally be a low-cost spread 
with substantial profit potential, even after commissions are included. 
EXTREMELY AGGRESSIVE BULL SPREAD 
An extremely aggressive type of bull spread is the "out-of-the-money" spread. In such 
a spread, both calls are out-of-the-money when the spread is established. These 
spreads are extremely inexpensive to establish and have large potential profits if the 
stock should climb to the higher striking price by expiration. However, they are usu­
ally quite deceptive in nature. The underlying stock has only a relatively remote 
chance of advancing such a great deal by expiration, and the spreader could realize a 
100% loss of his investment even if the underlying stock advances moderately, since 
both calls are out-of-the-money. This spread is akin to buying a deeply out-of-the­
money call as an outright speculation. It is not recommended that such a strategy be 
pursued with more than a very small percentage of one's speculative funds. 
LEAST AGGRESSIVE BULL SPREAD 
Another type of bull spread can be found occasionally - the "in-the-money" spread. 
In this situation, both calls are in-the-money. This is a much less aggressive position, 
since it offers a large probability of realizing the maximum profit potential, although 
that profit potential will be substantially smaller than the profit potentials offered by 
the more aggressive bull spreads. 
Example: XYZ is at 37 some time before expiration, and the October 30 call is at 7 
while the October 35 call is at 4. Both calls are in-the-money and the spread would 
cost 3 points (debit) to establish. The maximum profit potential is 2 points, but it 
would be realized as long as XYZ were above 35 at expiration. That is, XYZ could fall 
by 2 points and the spreader would still make his maximum profit. This is certainly a 
more conservative position than the aggressive spread described above. The com-