The following is a theoretical trade on AAPL options.
Suppose we enter into a bull spread with a strike price of 167.50 and 170 when the stock price is 151.03. We expect the stock prices to move up and investigate the value of the stock options.
| Trade date | 6 Mar 2023 |
| Stock price | 151.03 |
| Strategy | Bull spread |
| Expiration date | 17 Mar 2023 |
| Strike prices | 167.5, 170 |
Market snapshot
| Option | Expiration | Strike price | Bid | Ask |
| Put | 17 Mar 2023 | 167.5 | 15.35 | 18.15 |
| Put | 17 Mar 2023 | 170 | 17.85 | 21.00 |
| Call | 17 Mar 2023 | 167.5 | 0.04 | 0.05 |
| Call | 17 Mar 2023 | 170 | 0.03 | 0.04 |
Strategies
We purchase a bull spread using puts by selling the 167.5 put and buying the 170 put.
Sell P167.5@15.35
Buy P170@21
Net = 15.35-21=-5.65. This will result in a net debit of $5.65 in our account.
We purchase a bull spread using calls by selling the 167.5 call and buying the 170 call.
Sell C167.5@0.04
Buy C170@0.03
Net = 0.04-0.03 = 0.01. This will result in a net credit of 0.01 in our account.
5 days later
Suppose the date and time now is 10 Mar 2023 at 03.15am SGT. The stock price is 152. The option prices looks like this:
| Option | Expiration | Strike price | Bid | Ask |
| Put | 17 Mar 2023 | 167.5 | 15.50 | 15.75 |
| Put | 17 Mar 2023 | 170 | 18.05 | 18.25 |
| Call | 17 Mar 2023 | 167.5 | 0.04 | 0.05 |
| Call | 17 Mar 2023 | 170 | 0.02 | 0.03 |
The market value of our bull spread using puts is:
Buy P167.5 @ 15.75
Sell P170 @ 18.50
Market value = 18.5-15.75 = 2.75
The market value of our bull spread using calls is:
Buy C167.5 @ 0.05
Sell C170 @ 0.02
Market value = 0.02 – 0.05 = -0.03
The payoff of our strategy is then:
Using puts = 2.75 – 5.65 = -2.9
Using calls = -0.03 – 0.01 = -0.04
Conclusion
A bull spread using calls when there is a small increase in stock price yields better results.