Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

From Investopedia: In a bull call spread strategy, an investor simultaneously buys calls at a specific strike price while also selling the same number of

From Investopedia: In a bull call spread strategy, an investor simultaneously buys calls at a specific strike price while also selling the same number of calls at a higher strike price. Both call options will have the same expiration date and underlying asset. This type of vertical spread strategy is often used when an investor is bullish on the underlying asset and expects a moderate rise in the price of the asset. Using this strategy, the investor is able to limit their upside on the trade while also reducing the net premium spent (compared to buying a naked call option outright).

You have purchased 50 call options on IBM at a strike price of 150, while also selling 50 call options on IBM at a strike price of 170 (same maturity date).

On maturity date the price of IBM is $163.0. What is your net payoff on maturity date? Only maturity date payoffs, you do not have to consider the money you received and paid in setting up the bull call spread.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

QFinance The Ultimate Resource

Authors: Various Authors

1st Edition

1849300003, 978-1849300001

More Books

Students also viewed these Finance questions

Question

1. What is meant by Latitudes? 2. What is cartography ?

Answered: 1 week ago

Question

What is order of reaction? Explain with example?

Answered: 1 week ago