Spread inflow and outflow

CFA Level III Derivatives
#1

Correct me if I’m wrong

BULL SPREAD : Purchasing call with low X (costly) , selling call with high X (cheap). So initially we’re paying more or can say Cash outflow?

BEAR SPREAD: Selling Call with low X ( costly ), purchasing call with low X ( cheap ). So initially we’re receiving more or Can say Cash Inflow? OR

Purchasing Put with higher X ( cheap ), selling put with low X ( costly ), So cash inflow.

Hope I’m correct.

Thanks guys

#2

For a bear spread, you still have a cash outflow, the long put is more expensive than the short put.

#3

Thanks Mr Smart Really appreciated

#4

You can build a bear spread with either calls or puts:

  • A bear call spread will generate cash today, have a zero or negative payoff
  • A bear put spread will cost cash today, have a zero or positive payoff

You can build a bull spread with either calls or puts:

  • A bull call spread will cost cash today, have a zero or positive payoff
  • A bull put spread will generate cash today, have a zero or negative payoff

I wrote a series of articles on option strategies that covers all of this, starting here: http://www.financialexamhelp123.com/option-strategies/

Full disclosure: as of 4/25 I’ve installed the subscription software on my website, so there’s a charge for viewing the articles.

#5

Thank You S2000magician.