A bull call spread is a type of trading strategy used when trading in options.
The trader believes that a particular security will go up a moderate amount in the near-term, so he or she purchases one call option, and at the same time sells another call option with the same expiration month, but with a higher strike price (the price at which an option can be exercised).
For example, a stock is now trading at $15 per share; the investor purchases a call option with a strike price of $21 and sells another call option with a strike price of $30. Since the investor wrote a call option with a strike price of $30, if the price of the stock jumps up to $36, the investor is obligated to provide shares to the buyer of the short call at $30. This is where the purchased call option allows the trader to buy the shares at $21 and sell them for $30, rather than buying the share at the market price of $36 and selling them for a loss.
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Finance: What Is a Call Option?25 Views
finance a la shmoop. what is a call option? option? option, where are you? okay
yeah yeah. not phone options, call options. and a close but no cigar. a call option [man smokes in a tub of cash]
is the right to call or buy a security. the concept is easy the math is hard.
you think Coca Cola's poised for a breakout as they go into the new low
calorie beverage business. their stock is at 50 bucks a share and you can buy a [man stands on a stage as crowd cheers]
call option for $1. well that call option buys you the right
to then buy coke stock at 55 bucks a share anytime you want in the next
hundred and 20 days. so let's say Coke announces its new sugarless drink flavor
zero it's two weeks later and the stock skyrockets to fifty eight dollars a
share. you've already paid the dollar for the option now you have to exercise it. [man lifts weights]
so you buy the stock and you're all in now for fifty five dollars plus one or
fifty six bucks a share and your total value is now fifty eight bucks. well you
could turn around today and sell the bundle that moment, and you'll have
turned your dollar into two dollars of profit really fast. and obviously had the [equation on screen]
stock not skyrocketed so quickly well you would have lost everything. still you
lucked out and now you're sitting on some serious cash, courtesy of your call [two men in a tub of cash]
options. as for Coke flavor zero turned out to be nothing more than canned water.
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