Question

You are cautiously bullish on the common stock of the Wildwood Corporation over the next several months. The current price of the stock is $60 per share. You want to establish a bullish spread to help limit the cost of your option position. You find the following option quotes:

Wildwoood Corp Underlying Stock price: $60.00
Expiration	Strike	Call	Put
June	55.00	9.50	2.50
June	60.00	5.00	4.00
June	65.00	2.50	8.50

Suppose you establish a bullish spread with the puts. In June the stock's price turns out to be $64. Ignoring commissions, the net profit on your position is _______________.

$500

$400

$940

$540

Answer 1

In Bullish put spread, investor expect the price to relatively appreciate. In this strategy, an investor buy an out of the money put option and an in the money put option of the same expiry date.

ie Buy 1 June put @55 strike price ; sell june put @65 strike price

In june price is 64;

means entire 55 strike price put we bough became worthless;

loss due to 55 put =premium paid= 2.5

gain from 65 put that we sold

= premium recieved- current difference in stock and strike price

=8.5-1=7.5

Total profit= (7.5-2.5)*100 =500