# Options Strategies

## Strategy Number 16 - Long "Bull Call Spread"

 Market dATA DJ Index 100 points Prices Call 100 \$1,000 Put 100 \$600

Strategy name:

Recommended use of strategy

Expectation of moderate increase in the index, with a limited loss if we are mistaken and the index falls.

Strategy components

Buying a call option of a certain strike price.

Writing a call option of a higher strike price.

For example, buying a Call 100 option for \$1,000 and writing a Call 110 for \$600.

Expenses / Income from building the strategy

Expenditure of \$400.

Strategy graph:

Auxiliary table for building the profit line

 DJ Index(Horizontal axis) (Fixed expenses)/ fixed income Variable income(Call 100) Variable income(Call 110) Total profit / (loss) (Vertical axis)2+3+4 1 2 3 4 5 50 (\$4,000) --- --- (\$400) 60 (\$4,000) --- --- (\$400) 70 (\$4,000) --- --- (\$400) 80 (\$4,000) --- --- (\$400) 90 (\$4,000) --- --- (\$400) 100 (\$4,000) --- --- (\$400) 110 (\$4,000) --- \$1,000 \$600 120 (\$4,000) (\$1,000) \$2,000 \$600 130 (\$4,000) (\$2,000) \$3,000 \$600 140 (\$4,000) (\$3,000) \$4,000 \$600 150 (\$4,000) (\$4,000) \$5,000 \$600

Strategy analysis:

Source of Profit

When the index goes up we profit on the Call 100 option.

But when it goes over 110, the additional profit is offset by the Call 110 we wrote.

When the index goes up we profit on the 2 Call options.

When the index goes down we profit on the Put option.

The profit is greater if the index increases.

Source of loss

The loss derives from buying the strategy, for which we paid \$400.

The maximum loss is the cost of the strategy.

Break-even point

When the profit on the Call option equals the cost of the strategy - \$400.

This occurs when the index is at 104 points.

Strategy Number 16 - Long "Bull Call Spread" 567