When to use
If you think the market will go up somewhat or at least is a bit more likely to rise than fall.  Good position if you want to be in the market but are unsure of bullish expectations.  You're in good company;  this is the most popular bullish trade.

Profit Characteristics
Profit limited, reaching maximum if market ends at or above B at expiration.  If call vs. call version (most common) used, break-even is at A + net cost of spread.

Loss Characteristics
What is gained by limiting profit potential is mainly a limit to loss if you guessed wrong on market.  Maximum loss if market at expiration is at or below A.  With call vs. call version, maximum loss is net cost of the spread.

Decay Characteristics
If market is midway between A and B, no time effect.  At B, profits increase at fastest rate with time.  At A, losses increase at maximum rate with time.

BACK