Chapter 06 · Section 6.1

"Bought" Spreads

Both of these spreads are "bought" spreads. The holder has paid a net premium. The bull spread, then, consists of:
1 long low exercise call, and 1 short high exercise call.

The bear spread consists of:
1 short low exercise put, and 1 long high exercise put.

One can take apart these spreads, combining a call with a put, and create separate synthetic long and synthetic short positions.