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Rob's 2000 Notes

👨‍🏫 Gain and Premium For a Bull Spread

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Imagine a bull spread constructed from two call options. One call option has a strike price of $29 and the other has a strike price of $30. The premia of the two call options are $4 and $3.50, respectively. Construct a table with the P/L for each option and the P/L for the position as a whole. Be sure to show the stock price at which the spread has its maximum gain, its maximum loss, and just breaks even.
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S=$27S=$28S=$29 (=K)S=$29.50S=$30 (=K)S=$31
Buy K=$29 Call ($4)-$4-$4-$4$.50-$4
=-$3.50		$1-$4
=-$3		-$2
Sell K=$30 Call ($3.50)$3.50$3.50$3.50$3.50$3.50$3.50-$1
=$2.5
Bull Spread-$.50 max loss-$.50 max loss-$.50 max loss$0 Break-even!!$.50 max gain$.50 max gain