Probably from Dutch 'boel' (lover) — one of English's most dramatic reversals, from sweetheart to intimidator.
A person who habitually seeks to harm or intimidate those perceived as vulnerable; (archaic/informal) a fine fellow, a term of endearment.
Probably from Middle Dutch 'boel,' meaning 'lover, sweetheart, brother,' a term of endearment related to Middle High German 'buole' (brother, lover). When 'bully' entered English in the 1530s, it meant 'sweetheart' or 'darling' — a term of affection applied to either sex. It then shifted to 'fine fellow,' then to 'blusterer,' and finally to 'one who intimidates the weak.' The modern meaning is almost exactly the opposite of the original. Key roots: boel (Middle Dutch: "lover, sweetheart"), buole (Middle High German: "brother, lover").
When Shakespeare has Falstaff address the Host of the Garter Inn as 'bully' in 'The Merry Wives of Windsor,' he means 'fine fellow' — it was a hearty term of affection. Theodore Roosevelt's use of 'bully!' as an exclamation meaning 'excellent!' preserves this older positive sense, as does 'bully pulpit' (a splendid platform). The word's journey from 'sweetheart' to 'tormentor' is one of the most extreme reversals in English.