Bull Spreads

I've been focusing on mastering spreads for a while now because every other strategy is either a combination of spreads a just another type of spread. So, really understanding how spreads work and why is key to understanding all the other strategies.

Now, I know that there are bullish spreads and bearish spreads, and that some are credit spreads and others are debit spreads.  I also know that generally we're talking about going long with two options in the same month but different strikes.  Or, going short with two options in the same month but two different strikes.

But what I don't yet feel comfortable with is deciding between a bull call spread or a bull put spread (if I'm bullish that is). Or, if I'm bearish should I go with the bear call spread or the bear put spread?  Also, what are the general rules for what strike to buy, where should the greeks be, and how far/close to expiration I should place the trade???

Here are some of my notes from a recent class about spreads:

What is a spread?
An option strategy where you buy and sell options in a 1:1 ratio -- as one trade.  It's a "vertical spread" because the options are spread between two different strike prices.  On the quote board  (back in the olden days) prices would be listed vertically --> hence the term "vertical spread"

Why use a spread?

1. They're cost effective. Because you're selling one of the options, it's offsetting the cost of the one you're buying and thus reducing the whole cost of the trade.  This is good way to trade the more expensive stocks/options.
2. It's also good premium collection strategy

Two types:

1. Long vertical spread: call spread  -- this will also generate a debit
2. Short vertical spread: sell the put spread  -- this will generate a credit

General Rules:

• Buy the options in a spread always in a 1:1 ratio
• Have a directional bias for the stock and a reason for that bias

Construction:

Bull call spread: Buy low, sell high...

• Buy the lower strike call
• Sell the higher strike call

Bull put spread: same thing but with puts

• Buy the lower strike put
• Sell the higher strike put

... just remember BLSH = Buy Low, Sell High    ... which sounds like BULLISH