You are cautiously bullish on the common stock of the Wildwood Corporation over the next several months. The current price of the stock is $50 per share. You want to establish a bullish money spread to help limit the cost of your option position. You find the following option quotes:

If in June the stock price is $53, your net profit on the bull money spread (buy the 45 call and sell the 55 call) would be ________.

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 $50 per share. You want to establish a bullish money spread to help limit the cost of your option position. You find the following option quotes:

If in June the stock price is $53, your net profit on the bull money spread (buy the 45 call and sell the 55 call) would be ________.

Quizplus · Accepted Answer

S_T = $53 at contract maturity in June Profit = C45, June − C55, June − Initial cost Profit = [Max (0, $53 − $45) − Max (0, $53 − $55)](100) − $650 = $150

You Are Cautiously Bullish on the Common Stock of the Wildwood