Question

An investor who is bullish about a stock (believing its price will rise) may wish to...

An investor who is bullish about a stock (believing its price will rise) may wish to construct a “bull spread” on that stock by buying a call with strike price K1 and selling a call with the same expiration date but a strike price of K2 with K2 > K1. Draw the payoff curve for such a spread. Is the initial net cash flow (income from selling 2nd call minus cost of buying 1st call) positive or negative? Why?

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