Clarity in options nomenclature

Quick, when you’re short something, what happens to your trading account?

Right! You get a credit and assume a liability. You have put on a trade where you profit if the thing you sold goes down in value.

Now, when you have a vertical bull put spread, what happens to your trading account?

Tick tock, tick tock … where is that Series 7 study guide, I know it’s around here somewhere … let’s see, bull means up and put means down …? Hmmm … hold on, no that’s not it …

Bull put spread unnecessarily adds a metaphor to the already confusing world of options. And if you have even mild dyslexia, you can easily confuse bull versus bear, both of which are four letters long and both of which start with the letter b.

Now if I tell you that you have a short put spread, what does that tell you? Short means you get a credit and assume a liability. You get money in your account, just like short stock.

Conversely, long spreads require you to pay.

Also, let’s drop ‘vertical’ from the conversation. We can assume spreads are same-month options unless specified as being a calendar.

Okay, so here’s a quick reference guide to clear up the confusion.

Short put spread = bull put spread
Long put spread = bear put spread

Short call spread = bear call spread
Long call spread = bull call spread

Let’s leave the bulls and bears to the financial media, economics professors and government officials. As traders, let’s embrace a functional language that does more to clarify and less to mystify.

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