You are cautiously bullish on the common stock of the Wildwood Corporation over the next several months. The current price of the stock is $57 per share. You want to establish a bullish spread to help limit the cost of your option position. You find the following option quotes:
Wildwoood Corp Underlying Stock price: $57.00
Expiration Strike Call Put
June 52.00 9.20 2.35
June 57.00 4.85 3.70
June 62.00 2.35 8.20
Suppose you establish a bullish spread with the puts. In June the stock's price turns out to be $58. Ignoring commissions, the net profit on your position is _______________.
a) $100
b) $185
c) $628
d) $528

A bull spread is known as a bullish position in options trading. It is a vertical spread options strategy that is designed to earn profits from the slight rise in the prices of the underlying security. It can occur either by put option or call option.

The amount of net profit from the desired position is $185.

Computation:

The computation of initiating profit:

[tex]\rm{Initiating \;Profit}=Call\;put\;at\;June\;end\;-\;Call\;put\;at\;June\;beginning\\\\=\$8.20-\$2.35\\\\=\$5.35[/tex]

When the stock price is at $58 and the same stock price in June is $62.

According to the change in prices of the stock the net profit for the contract size of 100 lots is computed as follows:

[tex]\rm{Net Profit}=[Initiating\;Profit\;-(Stock\;Price-Current\;Price)]\times\;Contract\;Size\\\\=[\$5.85-(\$58-\$62)]\times100\\\\=[\$5.85-\$4]\times100\\\\=\$185[/tex]

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