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
If you want to judge conservatively, you must count on the possibility of the prices being less favorable: this means the calculation will use the bid for a sale and the ask for a purchase.