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OEX Bull Call Spreads

 

OEX Index is between 600 and 605 at expiration


Buy 1 OEX 600/605 Call Spread at $2.75 Debit

 
With the OEX exercise settlement value between the two strike prices of $600 and $605 at expiration, the short OEX 605 call would expire out-of-the-money and with no value, but the long 600 call would be in-the-money and worth its cash settlement amount. With OEX above the break-even point of 602.75, the settlement amount received for the 600 call would exceed the total debit initially paid for the spread and the investor would see a partial profit.

As an example, the OEX exercise settlement value is 604. The call’s cash settlement amount would be:

604 (settlement value) – 600 (call strike price) = $4 x $100 = $400

The investor’s partial profit would be:

  $400   cash settlement amount received at call’s exercise
- $275   total debit initially paid for spread
  $125   profit

On the other hand, if OEX settles below the break-even point (but above the lower 600 strike) the cash settlement amount will be less than the debit paid for the spread and a partial loss would be realized.

For instance, say the OEX exercise settlement value is 601. The call’s cash settlement amount would be:

601 (settlement value) ? 600 (call strike price) = $1 x $100 = $100

The investor’s partial loss would be:

  $275    total debit initially paid for spread
- $100    cash settlement amount received at call’s exercise
  $175    loss

 
 

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