✏️ Strategy Example
✏️ Suppose you have purchased a TSLA bull spread with strike prices at $190 and $200. List the profit or loss at 5 differ ent stock prices. Make sure to include a price at which the P/L reaches its maximum, minimum, and break-even point.
| S= | 150 | 170 | 190 | 210 | 230 |
|---|---|---|---|---|---|
| Profit/Loss for the Straddle |
Suppose that you have previously determined that the premium for the $190 call is $14 and the premium for the $200 call is $8.
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We go to: L12 Notes → Bull Spread
We find the following information.
Bull Spread:
A cheap, low risk bet that S will be relatively high.
🖱️To purchase one, you buy and sell call options on the same stock but with different strike prices. For the following bull spread, you:
- Buy the $600 call The lower strike price is for the long call.
- Sell the $610 call
💵 With it:
- you make $5 if S is above $610, but
- you lose $5 if S is below $600.
- A bull spread is made of a long call and a short call with different strike prices. The strike prices match the two kinks in the diagram. The lower strike price is for the long call.
- Putting this together, we will buy the $190 call and sell/write the $200 call
| S= | 0 | 185 | 190 | 195 | 196 | 200 | 205 |
|---|---|---|---|---|---|---|---|
long/buy $190 call @$14 | -$14 | -$14 | -$14 | -$9 | -$8 | -$4 | $1 |
| short/writing $200 call @$8 | $8 | $8 | $8 | $8 | $8 | $8 | $8-$5=$3 |
| Profit/Loss for the Bull Spread | -$6 | -$6 | -$6 | -$1 | $0 | $4 | $4 |
- I chose to include S=$0 because it’s an interesting what happens if TSLA goes to $0.
- I chose 26 because it is below the lower strike price.
- I chose 28 because it is the lower strike price.
- -I chose 28.5 because it is between the strike prices and I’m hoping it will be the breakeven point.
- I chose 29 because it is the higher strike price
- I chose 30 because it is higher than the higher strike price.
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