AI
Tuesday, January 01, 2008 7:05:26 PM
Bull Call Spread or Debit Spread
Expecting a stock to go up and bringing in premium.
Mechanic is to Buy Lower Strike Call (LSC) and Sell Higher Strike Call (HSC) with a same OE
Risk = Debit = cost of Buying LSC - credit of Selling HSC
Reward = (HSC - LSC) - Debit
Break even = LSC + Debit
Example:
AAPL Apr08 200 C @ 20.95
AAPL Apr08 230 C @ 10.10
Risk = Debit = 10.10 - 20.95 = 10.85
Reward = (230 - 200) - 10.85 = 19.15
Break even = 200 + 10.85 = 210.85
Expecting a stock to go up and bringing in premium.
Mechanic is to Buy Lower Strike Call (LSC) and Sell Higher Strike Call (HSC) with a same OE
Risk = Debit = cost of Buying LSC - credit of Selling HSC
Reward = (HSC - LSC) - Debit
Break even = LSC + Debit
Example:
AAPL Apr08 200 C @ 20.95
AAPL Apr08 230 C @ 10.10
Risk = Debit = 10.10 - 20.95 = 10.85
Reward = (230 - 200) - 10.85 = 19.15
Break even = 200 + 10.85 = 210.85
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