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Will Black

Vertical Spread Neebie Question

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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?

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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. 

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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.

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