Question

Bull call spread strategy:

The current stock price of is $78.91, you buy a call option with the expiration of August 21, with the strike price of 72.50$ with ask $11.30, then sell a call for 82.50$ with bid $5.40. You buy a 44 contracts of each call option, with a multiplier of 100.

Net Debit: paying $49,720(1,130*44 contracts) and receiving $23,760(540*44)= $25,960

You liquidate the options before expiration on May 20. The stock price on May 20 is 98$.

Show calculations of your profit/loss on each position, and the net profit/loss on the portfolio.

Answer 1

A long call option will profit if the stock price is higher than the strike price of the option.

A short call option will have a loss if the stock price is higher than the strike price of the option.

Profit on long call option = (stock price - strike price of long call option) * contract multiplier * number of contracts

Profit on long call option = ($98 - $72.50) * 100 * 44

Profit on long call option = $112,200

Loss on short call option = (stock price - strike price of short call option) * contract multiplier * number of contracts

Loss on short call option = ($98 - $82.50) * 100 * 44

Loss on short call option = $68,200

Net profit on portfolio = Profit on long call option - Loss on short call option - Net Debit

Net profit on portfolio = $112,200 - $68,200 - $25,960

Net profit on portfolio = $18,040