The Weekly Strategy Discussion is designed to assist individuals in learning how
options work and in understanding various options strategies. Options involve risk and are not suitable
for all investors. The strategies discussed are for educational and illustrative purposes
only, and should not be construed as an endorsement, recommendation or solicitation to buy or
sell securities. Commissions, taxes and transaction costs are not included. Please contact a tax advisor for the tax implications involved in these strategies.
View Options Institute Instructor Peter Lusk illustrate this strategy on CBOE-TV!
Vertical Call Spread
Example: XYZ stock is trading at $63.
Outlook:You are bullish on XYZ stock and expect it to rise over the next few months.
Possible strategy:Buy call spread:
Buy one June 60 strike call at $5.60
Sell one June 70 strike call at $1.60
Net Debit $4.00 ($400.00)
*All values shown are at the time of expiration .Commissions and other trading fees not included.
Stock
|
Long 60 Call
|
Short 70 Call
|
Spread Cost
|
Net Profit
(Loss)
|
55
|
0
|
0
|
(4)
|
(4)
|
60
|
0
|
0
|
(4)
|
(4)
|
65
|
5
|
0
|
(4)
|
1
|
70
|
10
|
0
|
(4)
|
6
|
75
|
15
|
(5)
|
(4)
|
6
|
At Expiration:
Maximum Profit = Difference in Strike Prices - Net Debit
Maximum Profit = $600
Breakeven = Strike Price + Net Debit
Breakeven = 64
Maximum Loss = Net Debit
Maximum Loss = $400
IN SUMMARY: This spread will be profitable if XYZ rises above $64 but the profit potential is limited at $70.Risk is limited to the total premium paid for the spread.Have a timeframe in mind to realize your forecast.
View Options Institute Instructor Peter Lusk illustrate this strategy on CBOE-TV!
Options involve risk and are not suitable for all
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of Characteristics and Risks of Standardized
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