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training_data/curated/text/b2730f8b41b4b8451d0870cda4def940d32728a883185d15d8476f26ac1e512c.txt

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+outcomes at expiration—above or below the strike—this spread has three
+possibilities: below both strikes, between the strikes, or above both strikes.
+In this example, if Apple is below $395 at expiration, both calls expire
+worthless. The rights and obligations of the options are gone, as is the cash
+spent on the trade. In this case, the entire debit of $4.40 is lost.
+If Apple is between the strikes at expiration, the 405-strike call expires
+worthless. The trader is long stock at an effective price of $399.40. This is
+the $395-strike price at which the stock would be purchased if the call is
+exercised, plus the $4.40 premium spent on the spread. The break-even
+price of the trade is $399.40. If Apple is above $399.40 at expiration, the
+trade is profitable; below $399.40, it is a loser. The aptly named bull call
+spread requires the stock to rise to reach its profit potential. But unlike an
+outright long call, profits are capped with the spread.
+If Apple is above $405 at expiration, both calls are in-the-money (ITM).
+If the 395-strike calls are exercised, the trader buys 100 shares of Apple at
+$395 and these shares, in turn, would be sold at $405 when the 405-strike
+calls are assigned, for a $10 gain per share. Subtract from that $10 the $4.40
+debit spent on the trade and the net profit is $5.60 per share.
+There are some other differences between the 395–405 call spread and the
+outright purchase of the 395 call. The absolute risk is lower. To buy the
+395-strike call costs 14.60, versus 4.40 for the spread—a big difference.
+Because the debit is lower, the margin for the spread is lower at most
+option-friendly brokers, as well.
+If we dig a little deeper, we find some other differences between the bull
+call spread and the outright call. Long options are haunted by the specter of
+time. Because the spread involves both a long and a short option, the time-
+decay risk is lower than that associated with owning an option outright.
+Implied volatility (IV) risk is lower, too. Exhibit 9.2 compares the greeks of
+the long 395 call with those of the 395–405 call spread.
+EXHIBIT 9.2 Apple call versus bull call spread (Apple @ $391).
+395 Call395–405 Call
+Delta 0.484 0.100
+Gamma0.00970.0001
+Theta −0.208−0.014
+Vega 0.513 0.020