Chapter 06 · Section 6.1

Establishing a Bull Call Spread

On the basis of the following table, you want to establish a bull call spread strategy on the underlying. The shares are currently trading at 39 1/8.

            CALLS Eastman Kodak
strike      Jan.             Feb.            Apr.  
         bid - ask        bid - ask       bid - ask

30     9 1/4 - 9 3/4    8 7/8 - 9 1/4   9 5/8 - 10 1/8
35     5 3/4 - 6 1/8    4 7/8 - 5 1/4   5 1/8 -  5 1/2
40       3/8 -   1/2    1 1/4 - 1 3/8   1 7/8 -  2 1/8
45      1/16 -   1/4      1/8 -   1/4    7/16 -  1/2

• a) yes
  No. An order for this spread could cost $ 5 3/4 (6 1/8 - 3/8) at the market, but even if you had the chance to buy the spread under more favorable cond- itions $ 5 1/4 (5 3/4 - 1/2)
  b) no
  c) maybe

(Click here for help)