← IntermediateLesson 12 · 4:49
Bull call spread
Summary
You can build a bull call spread by buying a lower-strike call and selling a higher one, and state before you pay what it costs, the most you can make and lose, and where you break even. You can see how time hurts or helps it, and why it should be closed before the last day if XYZ ends between the strikes.
Key terms
- bull call spread
- Buy a lower-strike call and sell a higher-strike call with the same expiry, paying to open, to profit from a rise.
- bull
- Expecting a rise in the stock.
- debit spread
- A spread you pay to open.
- exercise
- Using the right in an option, so a call buys, or a put sells, the shares at the strike price.
Check yourself
Answer each question to see why the right answer is right.
1. You buy the XYZ $100 call for $3.45 and sell the $105 call for $1.58, both with 30 days left. What do you pay for one spread?
2. What is the most this bull call spread can make, and where does it break even?
3. XYZ stays at $100 until the last day. What is your result?
4. Compared with the $100 call bought alone, what do you give up with the spread?
5. XYZ ends at $103 on the last day, between your strikes. What can happen, and what does the lesson suggest?
Finished the video and the quiz? .