Question

Prices as shown on 20 Dec 2018

Apple Inc :  Current spot price: $ 150   

CALLS				PUTS
Dec	Jan	Feb	Strike Price	Dec	Jan	Feb
5	8.85	-	149	2.67	6.6	7.93
4.25	8.35	9.65	150	3.15	7	8.38
2.97	7	7.95	152	4.2	8.1	9.5
1.88	5.83	7.36	155	5.85	9.3	10.64

Construct a  Bull Spread diagram using data from the above table.

If  price of Apple Inc moves to 175 sometime in the near future how much profit will you make ?

Answer 1

Bull Spread involved buying a call option of lower strike and selling a call option with a higher strike, both the options should have same underlying and same expity

It is a strategy when we have a view of limited upside in the stock price

Step 1 - construction of bull spread

Expiry	Strike	Option	Buy/Sell	Price
Dec	150	Call	Buy	4.25
Dec	155	Call	Sell	1.88

Step 2 - Calculation of cash outflow on strategy

Expiry	Strike	Option	Buy/Sell	Inflow / Outflow	Price
Dec	150	Call	Buy	Outflow	-4.25
Dec	155	Call	Sell	Inflow	1.88
				Net Outflow	-2.37

Therefore we have paid 2.37 to enter in a bull spread

Step 3 - Payoff and profit calculation

Particulars	Amount
Stock Price on Expiry	175
Payoff From 150 Strike Call option (175-150)	25
Payoff From 155 Strike Call option (155-175)	-20
Total Payoff	5
Option Premium Paid	-2.37
Profit	2.63

Step 4 - Formulae