Bull call spread

EXHIBIT 17.24 Creating a Bull Call Spread to Speculate on a Rise in Bond Prices... 

Although this strategy creates the potential for an investor to treble his money for a 50 bp drop in bond yields, the investor would lose everything if bond prices stay the same or fall. An alternative strategy is to create a bull call spread by ... 

Although the maximum benefits are limited, the cost of the bull call spread pictured here is 30% cheaper than buying the ATM call, so maximum losses are also 30% lower. Moreover, if bond prices remain the same, the net loss of 0.34 million from the bull call spread is less than 30% of the loss realised from the ATM call. Finally, if bond prices rise 1.50%, the bull call spread makes a 1.2 million profit, or almost 150% of the premium invested, while the ATM call only makes a 0.32 million profit, or just 27% of the premium invested. 

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See also in sourсe #XX -- [ ]

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