Call Spreads.
Simultaneous purchase of a call, and sale of a different strike call. The two calls in a call spread are for the same number of underlying units and expiration date.
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Payout at Expiration.
The difference between each of the two options (non-negative) payouts, as determined for each option. Each option payout is the price of the underlying at expiration minus the strike, if positive, and zero otherwise. The combined payout subtracts the expiration value of the short call from the expiration value of the long call. The maximum payout and net premium of call spreads are bound by the range of the spread. If both options are in the money at expiration the difference in their payouts is the range of the spread.
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Bull Call Spreads.
The purchase of a lower strike call and sale of a higher strike call. The net premium is positive as the low strike call has more value than the high strike call. They are a debit position from an investor perspective, as at inception the investor’s account gets debited to pay the net premium.
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The payout of bull call spreads is always positive or zero, before accounting for the net negative premium.
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Bear Call Spreads.
The purchase of a higher strike call and sale of a lower strike call. The net premium is negative as the high strike call being purchased has less value than the low strike call being sold. They are a credit position from an investor perspective, as at inception the investor’s account gets credited the net premium.
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The payout of bear call spreads is always negative or zero, before accounting for the net positive premium.
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