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training_data/curated/text/f32235085d68cf3ff9dbfcadc718fa1a4f944dd05e72f8f6e7980985d11d681c.txt

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+774 Part VI: Measuring and Trading Volatility 
+First, one can see that the bullish spread position has a total risk of 17 points, if 
+X'YZ is below 80 (the lower striking price of the put spread) at expiration. That, of 
+course, is more than the 10-point cost of the July 100 call by itself, but if one is using 
+a trading stop of any sort, he probably would not be at risk for the entire 17 points, 
+since he wouldn't hold on while the stock fell all the way to 80 and below. Note also 
+that the bullish spread position would have a loss of 10 points (the same as the call) 
+at a price of 87 for the common at expiration. Hence, the combined position actual­
+ly has less risk than the outright call purchase as long as XYZ is 87 or higher at expi­
+ration. Since one is supposedly bullish initially when establishing this strategy, it 
+seems likely that he would figure the stock would be 87 or higher at expiration. · 
+Figure 37-7 offers another comparison, that of the two positions after 30 days 
+have passed. Note that the spread position once again does better on the upside and 
+worse on the downside. The crossover point between the two curves is at about a 
+price of95. That is, ifXYZ is above 95 in 30 days, the bullish spread position will out­
+perform the call buy. 
+One final point should be made regarding the investment required. The out­
+right call purchase requires an investment of $1,000 - the cost of the long call. The 
+bullish spread position requires that $1,000, plus $700 for the spread (IO-point dif­
+ference in the strikes, less the 3-point credit received for selling the spread). That's a 
+total of $1,700, the risk of the bullish spread position. Hence, the rate of return might 
+favor the outright call purchase, depending on how far the stock rallies. 
+FIGURE 37-7. 
+Results of the two positions in 30 days. 
+Cl) 
+_g 
+:;::, 
+e 
+Cl.. 
+~ 
+1000 
+-1000 
+-2000-
+Spread 
+95 
+110 
+Stock 
+/ 
+Outright Call Purchase 
+120