When it comes to learning about investing, there are a number of different kinds of securities that people can trade. As a matter of fact, some of these can become so complex that it is a good idea to start off with securities that are a little simpler so that you can get the basics of how to read markets and when to buy and sell assets so that you can generate the highest returns. As securities become more and more complex with different underlying assets, however, investors do begin to develop strategies that help them to generate the highest returns. This often involves buying and selling securities at sometimes unexpected times and in counterintuitive ways. This certainly can be found with put bull spreads.
When people use put bull spreads, they basically are assuming that one of the underlying assets of a security is going to rise in value very soon. This can be determined in a number of ways. In some instances, an investor might be studying a stock, for example, and realize that a company is on the way up, so he or she can depend on benefiting from the rising price of that stock. If an underlying asset is a security from the commodities market, an investor might see that certain commodities are about to drastically rise in value. Keep in mind that these kinds of spreads are possible only when investors use complex securities with multiple assets holding them up.
Once an investor is sure that his or her underlying asset is going to increase in value, he or she can sell an asset that is perhaps not going to generate much of a return and purchase an asset that is much more expensive. This is, of course, counterintuitive. Usually people look to generate the highest returns. The reason this kind of spread works, however, is because the investor has an underlying asset that he or she is sure is going to increase in value. The premium, of the amount paid by an investor, is canceled out by the value of the rising underlying asset. This is more or less how this kind of spread works.
While put bull spreads and other similar strategies are fairly common among experienced investors, it is important that you are quite familiar with markets before you start trying these kinds of strategies. In order to pull off this kind of strategy, you really have to know how relevant markets operate and when it is safe to buy or sell and when you should fall back a little. While knowing the math in order to do this kind of investing is helpful, having a good sense of a market is equally as important.