Will Black Posted November 19, 2021 Posted November 19, 2021 All, I understand the basic concepts of a vertical spread but need one clarification. In regards to a bullish spread the max value is the distance between the purchase call option and the sell call option. For example, if we have a strike price at $100 and we buy a call option at say $97.00 and sell a call option at $102 we have a maximum profit of $5.00 or (($5.00 * 100)-minus the cost of the buy option). What happens if the price rises above the sell price of $102.00? What does it do to the value of the trade? Quote
Yowster Posted November 19, 2021 Posted November 19, 2021 27 minutes ago, Will Black said: All, I understand the basic concepts of a vertical spread but need one clarification. In regards to a bullish spread the max value is the distance between the purchase call option and the sell call option. For example, if we have a strike price at $100 and we buy a call option at say $97.00 and sell a call option at $102 we have a maximum profit of $5.00 or (($5.00 * 100)-minus the cost of the buy option). What happens if the price rises above the sell price of $102.00? What does it do to the value of the trade? The farther above 102 you go the closer the spread value gets to the spread width. It also depends on how close you are to expiration - the closer to expiration the quicker the value approaches the spread width. Quote
Will Black Posted November 19, 2021 Author Posted November 19, 2021 1 hour ago, Yowster said: The farther above 102 you go the closer the spread value gets to the spread width. It also depends on how close you are to expiration - the closer to expiration the quicker the value approaches the spread width. 1 hour ago, Yowster said: The farther above 102 you go the closer the spread value gets to the spread width. It also depends on how close you are to expiration - the closer to expiration the quicker the value approaches the spread width. ok I'm not sure I follow the last response but what happens to the value of the spread as it gets to closer to the spread width or above $102? At the $102 range it's at it max profit value. Quote
Yowster Posted November 19, 2021 Posted November 19, 2021 With a stock price of 102 that 97/102 vertical may be worth 4.75 a day before expiration, 4.00 a week before and 3.00 a month before Quote
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