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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 date6 Mar 2023
Stock price151.03
StrategyBull spread
Expiration date17 Mar 2023
Strike prices167.5, 170

Market snapshot

OptionExpirationStrike priceBidAsk
Put17 Mar 2023167.515.3518.15
Put17 Mar 202317017.8521.00
Call17 Mar 2023167.50.040.05
Call17 Mar 20231700.030.04

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:

OptionExpirationStrike priceBidAsk
Put17 Mar 2023167.515.5015.75
Put17 Mar 202317018.0518.25
Call17 Mar 2023167.50.040.05
Call17 Mar 20231700.020.03

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.