An investor has a quite bullish view that prices in the share market will rise, but is concerned that there is still some risk that prices might fall.

Posted: January 10th, 2022

An investor has a quite bullish view that prices in the share market will rise, but is concerned that there is still some risk that prices might fall. Draw and explain the relevant profit profiles for a call bull spread strategy for (a) the holder of a call option, (b) the writer of a call option and (c) the long call plus short call. (LO 20.5)

(a) In what circumstances might an investor consider a vertical bear spread option strategy?

(b) Discuss the construction of the strategy and draw the relevant profit profiles. (LO 20.5)