Class: Directional

Synthetics Long call A, short call B Long put A, short put B Long call A, short put B, Short instrument

Long put A, short call B, long instrument

When to use:

If you think the market will go up somewhat or at least is a

bit more likely to rise than fall. Good position if you want to

be in the market but are unsure of bullish expectations.

You’re in good company: This is the most popular bullish

trade.

Profit Characteristics:

Profit limited, reaching maximum if market ends at or above

B at expiration. If call-vs.-call version (most common) used,

break-even is at A + net cost of spread.

Loss Characteristics:

What is gained by limiting profit potential is mainly a limit to

loss if you guessed wrong on market. Maximum loss if

market at expiration is at or below A. With call-vs.-call version,

maximum loss is net cost of spread.

Decay Characteristics:

If market is midway between A and B, no time effect. At B, profits

increase at fastest rate with time. At A, losses increase at

maximum rate with time.