Shivam7495
New Member
Hi,
I am currently trying to understand the payoff from the Bull Call Spread. I am following the GARP material. Here, in the Table 13-1, Payoff from a Bull Spread Created Using Calls, it is mentioned that the payoff from the short call option is zero when ST (which is the price of the underlying stock) is less than K1 (which is the strike price of the long call option with lower strike price). Similarly, the payoff from the short call option is zero K1<ST<K2(which is the strike price of the short call option with higher strike price). Further, it is -(ST-K2) when the ST is greater than equal to K2. Could someone please explain why the payoff of the short call is either zero or in negative (as ST goes down the short call option should fetch profit when ST<K ignoring the premium paid)?
I am currently trying to understand the payoff from the Bull Call Spread. I am following the GARP material. Here, in the Table 13-1, Payoff from a Bull Spread Created Using Calls, it is mentioned that the payoff from the short call option is zero when ST (which is the price of the underlying stock) is less than K1 (which is the strike price of the long call option with lower strike price). Similarly, the payoff from the short call option is zero K1<ST<K2(which is the strike price of the short call option with higher strike price). Further, it is -(ST-K2) when the ST is greater than equal to K2. Could someone please explain why the payoff of the short call is either zero or in negative (as ST goes down the short call option should fetch profit when ST<K ignoring the premium paid)?
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