Anticipations - Bull Call Spread
An upward move in the underlying asset, but the extent of the move is uncertain.
Characteristics - Bull Call Spread
Limited profit / limited loss.
Max profit - difference between the strike prices less net debit of spread.
Max loss - limited to the net debit required to establish the position.
Creating - Bull Call Spread
Buy a call option and sell a call option with a higher strike.
Example - Bull Call Spread
Security(IBM) price - $100
Long 1 IBM 100 Call - $6.5
Short 1 IBM 110 Call - $2.8
Max profit = $[(110 - 100) - (6.5 - 2.8)] * 100 = $630
Max loss = $(6.5 - 2.8) * 100 = $370
Option Position at Expiration
Comments
If a rise in implied
volatility is expected : buy ATM call / sell OTM call.
If a fall in implied
volatility is expected: buy ITM call / sell ATM call.
|
