call spread calculator

In-the-money calls whose time value is less than the dividend have a high likelihood of being assigned. Therefore, if the stock price is above the strike price of the short call in a bull call spread , an assessment must be made if early assignment is likely. If assignment is deemed call spread calculator likely and if a short stock position is not wanted, then appropriate action must be taken. Before assignment occurs, the risk of assignment can be eliminated in two ways. First, the entire spread can be closed by selling the long call to close and buying the short call to close.

Long put spreads are the opposite of a short put spread, as they profit if the stock price goes down. For example, if you collect $5.00 when selling a put option with a $100 strike price, the break even point is $95. The underlying security must be above $95 at expiration for the position to make money. For example, if you receive $5.00 for selling a call option with a $100 strike price, the break even point is $105. The underlying security must be below $105 at expiration for the position to make money. The investor would lose through its short call position by having to purchase at the market price of $65 and selling it to the option holder at $60.

Maximum profit

A bull call spread is a bullish strategy that consists in having two call contracts. First, you buy the long call with a strike price, let’s say S1, and immediately afterward, you acquire a short call with a strike price of S2. The long call strike price shall be lower than the short call strike price . You will earn the maximum profit if the stock price ends above S2. The following section will cover examples for the four vertical spread option strategies in our options spread calculator. For the bearish and bullish strategies, we will add a few fundamental recommendations to help you accomplish a better return on investment .

call spread calculator

See estimated option prices, compare option strategies, & search option chains. Limited to the maximum gain equal to the difference in strike prices between the short and long call and net commissions. Review the Characteristics and Risks of Standardized Options brochure before you begin trading options.

What are the vertical spread options strategies?

The value of the option will decay as time passes, and is sensitive to changes in volatility. If the strike price rises much above the higher strike price, then the maximum profit is capped and starts acting as a liability on the trading position. Naked CallA naked call is a high-risk options strategy wherein the investor sells a call option without possessing the underlying stock. The opposite trade, called a bear put spread, also buys the more expensive option while selling the less expensive option .

call spread calculator

The following is the profit/loss graph at expiration for the Bull Call Spread in the example given on the previous page. If the trader expects the stock to move higher, but only $1 higher, then buying the $52.50/$55.00 Bull Call Spread would be foolish. The trader expects the stock to move above $52.92 but not higher than $55.00 in the next 30 days.

AKA Bull Call Spread; Vertical Spread

If your strategy turns a profit with a spot price increase, then it is called a bull call spread. If your strategy turns a profit with a declining spot price, then it is called a bear call spread.

  • The trader expects the stock to move above $52.92 but not higher than $55.00 in the next 30 days.
  • The time value portion of an option’s total price decreases as expiration approaches.
  • In practice, however, choosing a bull call spread instead of buying only the lower strike call is a subjective decision.
  • An investor looking to bet on a stock moving higher may embark on a bull vertical call spread.
  • If the income collected from all options sold results in a lower monetary value than the cost of all options purchased, the result is a net debit to the account, hence the name debit spread.
  • Traders will use a vertical spread when they expect a moderate move in the price of the underlying asset.
  • If the stock price is “close to” or below the strike price of the long call , then the price of the bull call spread decreases with passing of time .

Let’s assume that there are two traders who are equally bullish on XYZ in the near-term and intend to use options to potentially capitalize on that bullish forecast. The Bull Call Spread is an options strategy involving the purchase of a Call with a lower strike and the selling of a Call with a higher strike.

How to Calculate Break Even Prices for Option Strategies

In the language of options, this is a “near-zero gamma.” Gamma estimates how much the delta of a position changes as the stock price changes. A vertical spread involves the simultaneous buying and selling of options of the same type and expiry, but at different strike prices. However, in return for lower risk, a vertical spread strategy will cap the profit potential as well.