I have created a bull call spread. There was spread of 70 dollars between the option premium of 2 strikes I selected. Now the spread between option premium of 2 strikes is greater than 100 dollars. What can be the reason for this? I have atm short call and otm long call on gold. Now the price has increased. I created this strategy on 7th July 2020 and expiry is after 1 year.
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1 Answer
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An ATM short call combined with an OTM long call is a bearish call spread not a bullish call spread.
Option prices vary as the price of the underlying changes, as time passes and option premium decays as well as due to changes in implied volatility. A combination of the three of these is responsible for the spread widening.
