178 Part II: Call Option Strategies 
must be pointed out that the bull spread has fewer dollars at risk and, if the under­
lying stock should drop rather than rise, the bull spread will often have a smaller loss 
than the outright call purchase would. 
The longer it takes for the underlying stock to advance, the more the advantage 
swings to the spread. Suppose XYZ does not get to 35 until expiration. In this case, 
the October 30 call would be worth 5 points and the October 35 call would be worth­
less. The outright purchase of the October 30 call would make a 2-point profit less 
one commission, but the spread would now have a 3-point profit, less two commis­
sions. Even with the increased commissions, the spreader will make more of a prof­
it, both dollarwise and percentagewise. 
Many traders are disappointed with the low profits available from a bull spread 
when the stock rises almost immediately after the position is established. One way to 
partially off set the problem with the spread not widening out right away is to use a 
greater distance between the two strikes. When the distance is great, the spread has 
room to widen out, even though it won't reach its maximum profit potential right 
away. Still, since the strikes are "far apart," there is more room for the spread to 
widen even if the underlying stock rises immediately. 
The conclusion that can be drawn from these examples is that, in general, the 
outright purchase is a better strategy if one is looking for a quick rise by the under­
lying stock. Overall, the bull spread is a less aggressive strategy than the outright pur­
chase of a call. The spread will not produce as much of a profit on a short-term move, 
or on a sustained, large upward move. It will, however, outperform the outright pur­
chase of a call if the stock advances slowly and moderately by expiration. Also, the 
spread always involves fewer actual dollars of risk, because it requires a smaller debit 
to establish initially. Table 7-2 summarizes which strategy has the upper hand for var­
ious stock movements over differing time periods. 
TABLE 7-2. 
Bull spread and outright purchase compared. 
If the underlying stock ... 
Remains 
Relatively Advonces Advances 
Declines Unchanged Moderately Substantially 
in ... 
1 week Bull spread Bull spread Outright purchase Outright purchase 
1 month Bull spread Bull spread Outright purchase Outright purchase 
At expiration Bull spread Bull spread Bull spread Outright purchase