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Strategy View
Investor thinks that the market will be weak in the short-term, but then
rally later.
Strategy Implementation
A near-dated call option is sold, and a longer-dated, farther out-of-the-money
call option is bought.
Upside Potential
Unlimited, if the bought option is held after the short option expires
(the position then becomes a straight-forward buy call). If the position
is closed at expire of the near option, maximum profit will accrue if
the market is at the level of the sold strike.
Downside Risk
Limited to the difference in strikes plus/minus the initial debit/credit
when establishing the spread.
Margin
Yes, but off-set may apply.
Comment
There is a risk of the sold options being called (i.e. being exercised). |
