An investor who is bullish about a stock (believing that it will rise) may wish to construct

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An investor who is bullish about a stock (believing that it will rise) may wish to construct a bull spread for that stock. One way to construct such a spread is to buy a call with strike price \(K_{1}\) and sell a call with the same expiration date but with a strike price of \(K_{2}>K_{1}\). Draw the payoff curve for such a spread. Is the initial cost of the spread positive or negative?

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Investment Science

ISBN: 9780199740086

2nd Edition

Authors: David G. Luenberger

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