A ONE-STOP PORTAL OF INFORMATION FOR FUTURES AND COMMODITIES TRADERS


A bull call spread is a combination of a long call at one strike price, and a short call with a higher strike price. Both options have the same expiration date.

This is a bullish position which allows a trader to establish a long market position with limited risk and low cost.

The trader buys an at-the-money call which he will exercise should prices rise, as he feels they will. However, unlike someone with an outright long position, the trader feels there is a distinct possibility that prices will fall, so he sells a call with a higher strike price. This lets him collect a premium to partially offset the cost of his long position, with a somewhat lesser chance that this option will be exercised.

However, if prices do rise, and he is called upon to provide a futures contract at the higher strike price, he can turn around and exercise the at-the-money call he purchased and buy a futures contract.

Risk is limited to the net debit. Maximum profits are equal to the difference between strike prices minus the net debit.

Position
Premium
Dollar Premium
Delta
Buy one $20 crude oil call $1.17$1,170 +.52
Sell one $21 call $0.50$500 -.29
- Net debit $0.67 $670 00
- Net delta 0000 00
00 0000 00
Maximum risk $0.67 per barrel$670 per position +.23
Maximum profit $0.33 per barrel$330 per position 00
Break-even futures price $20.67 00 00

Position
Premium
Dollar Premium
Delta
Buy one $260 gold call $6.70$670 per position +.50
Sell one $280 call $1.10$110 -.15
- Net debit $5.60 $560 00
- Net delta 0000 00
00 0000 00
Maximum risk $5.60 per ounce$560 per position +.35
Maximum profit $14.40 per oz.$1,440 per position 00
Break-even futures price $265.60 00 00

  

*Information Courtesy of



Copyright 2004 FuturesBuzz.com. All rights reserved.
Disclaimer