Options = not my strong suit. But this is very much bugging me:

You are bullish about an underlying that is currently trading at a price of $80. You choose to go long one call option on the underlying with an exercise price of $75 and selling at $10, and go short one call option on the underlying with an exercise price of $85 and selling at $2. Both the calls expire in three months.

The price of the underlying at expiration is $78. What is the value at expiration?

Answer:

Long call: max (0, 78 - 75) = 3. So far so good.

Short call: max (0, 78 - 85) = 0. **Heres my problem. Doesn’t a short call profit when the underlying declines?**

VT=max(0,ST−X1)−max(0,ST−X2)=max(0,78−75)−max(0,78−85)=3−0=3

T=max(0,ST−X1)−max(0,ST−X2)

=max(0,78−75)−max(0,78−85)=3−0

VT=max(0,ST−X1)−max(0,ST−X2)=max(0,78−75)−max(0,78−85)=3−0=3VT=max(0,ST−X1)−max(0,ST−X2)=max(0,78−75)−max(0,78−85)=3−0=3

VT=max(0,ST−X1)−max(0,ST−X2)=max(0,78−75)−max(0,78−85)=3−0=3