Online Courses - Basics of Spreading: Vertical Spreads

Course Overview:

First in the series, this module presents detailed explanations and examples of Vertical Spreads.

The following spreads are covered in this module:

  • Bull Call Spread
    The bull call spread is a long vertical spread made up entirely of call options on the same underlying stock (or index). It’s constructed by purchasing a call with one strike price and selling (writing) another call with a higher strike price but same expiration month.
  • Bear Put Spread
    The bear put spread is a long vertical spread made up entirely of put options on the same underlying stock (or index). It’s constructed by purchasing a put with one strike price and selling (writing) another put with a lower strike price but same expiration month.
  • Bear Call Spread
    The bear call spread is a short vertical spread made up entirely of call options on the same underlying stock (or index). It’s constructed by purchasing a call with one strike price and selling (writing) another call with a lower strike price but same expiration month.
  • Bull Put Spread
    The bull put spread is a short vertical spread made up entirely of put options on the same underlying stock (or index). It’s constructed by purchasing a put with one strike price and selling (writing) another put with a higher strike price but same expiration month

Each Spread discussion includes an analysis of:

  • General Nature & Characteristics
  • Debit vs. credit
  • Motivation for Spreading
  • Risk vs. Reward
    • Maximum Loss
    • Maximum Profit
    • Break Even Point
  • Profit & Loss Before Expiration
  • Effect of Volatility
  • Effect of Time Decay
  • Assignment Risk

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