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
Is the January call spread of 35 - 40 a good investment? Are you really bullish by selling an in the money option? Calculate the potential gain from the spread compared to the investment required.