24 lines
1.0 KiB
Plaintext
24 lines
1.0 KiB
Plaintext
Chapter 25: LEAPS
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FIGURE 25-7.
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Bull spread comparison at April expiration.
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Stock Price
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405
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The diagonal spread is different, however. Typically, the maximum profit poten
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tial of a bull spread is the difference in the strikes less the initial debit paid. For this
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diagonal spread, that would be $1,000 minus $2,050, a loss! Obviously, this simple
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formula is not applicable to diagonal spreads, because the purchased option still has
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time value premium when the written option expires. The profit graph shows that
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indeed the diagonal spread is the most bullish of the three. It makes its best profit at
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the strike of the written option - a standard procedure for any spread - and that prof
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it is greater than either of the other two spreads at April expiration ( under the sig-
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TABLE 25-4.
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Bull spread comparison at April expiration.
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Stock Price Short-Term Diagonal LEAPS
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80 -500 -1, 100 -200
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90 -500 - 600 -150
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100 -500 50 - 25
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110 500 750 50
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120 500 550 150
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140 500 150 250
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160 500 50 350
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180 500 - 350 450 |