Vertical Call Spread

The VIX Strategy Workshop is a collection of discussion pieces designed to assist individuals in learning how options work and in understanding VIX options strategies. These discussions and materials are for educational purposes only and are not intended to provide investment advice.

Investment decisions should not be made based upon worksheet outcomes.

Access to, or delivery of a copy of, the Options Disclosure Document must accompany this worksheet.

Vertical Call Spread

Example: VIX Index is at $16.59

March VIX Futures are at $19.45

Outlook: You are bullish on the VIX Index and expect it to rise over the next couple months.

Possible strategy: VIX Vertical Call Spread:

Buy one Mar 22.5 strike Call at $2.00

Sell one Mar 27.5 strike Call at $1.00

Net Debit (cost) equals $1.00

*All values shown are at the time of expiration. Commissions and other trading fees not included.

VIX Index Long 22.5 VIX Call Short 27.5 VIX Call Net Profit
(Loss)
20 ($2.00) $1.00 ($1.00)
  22.5 ($2.00) $1.00 ($1.00)
25 $.50 $1.00 $1.50
  27.5   $3.00 $1.00 $4.00
30 $5.50 ($1.50) $4.00

At Expiration:

  • Maximum Profit = Difference in Strike Prices - Net Debit
  • Maximum Profit: (27.5 - 22.5) - $1.00 = $4.00
  • Breakeven = Lower Strike Price + Net Debit
  • Breakeven: 22.5 + $1.00 = $23.5
  • Maximum Loss = Net Debit
  • Maximum Loss: $1.00

*VIX expiration is the Wednesday 30 days prior to the next month's option expiration. The last trading day is the Tuesday before the Wednesday of VIX options/futures expiration.

In Summary: This spread will be profitable if the VIX futures rise above 23.5 but the profit potential is limited at 27.5 Risk is limited to the total premium paid for the spread. Have a timeframe in mind to realize your forecast.

Special Offers
*Third Party Advertisements

Advertisement Advertisement