Chapter 06 · Section 6.1

ALCOA Calls

It is three weeks before the December strike and ALCOA stock is trading at 55 7/8. You anticipate a moderate fall towards the end of the month. Therefore you decide to implement a bear call spread strategy with the 50-55 calls. Assume that you make the best choices, how many spreads do you get if you receive a net premium of $70,000?

      Calls ALCOA January

Strike     bid - ask 
45      10 1/2 - 10 5/8
50      5 7/16 - 5 9/16
55       1 3/4 - 1 15/16
60         1/4 -  5/16

a) 183
b) 184
• c) 200
  Yes. In dividing the $70 000 by 3.50 (5 7/16 - 1 15/16) and then by the size of the contract (100), you obtain 80 call spreads sold. Continue
  d) 400

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