HOW TO CALCULATE VERTICAL SPREAD PROFIT and LOSS

 

 

OPTIONS IS NOT A GUESSING GAME !

You always know the MAXIMUM profit you can make

AND

the MAXIMUM amount you can lose before opening an order!

 

 

HOW TO CALCULATE BULL CALL VERTICAL SPREAD – PROFIT

MAXIMUM PROFIT (Cannot make more than this):

1. Take the DIFFERENCE in strike prices
(must be in-the-money)

2. less the PREMIUM (debit) paid

Example to calculate profit:

Stock Price: $58.15
OPEN Order: CALL – Ask 55.00 @ 3.50
CALL – Bid 57.50 @ 2.00 = $1.50 Premium
X 100 = $150.00

Stock Price: $63.50 —
CLOSE Order: CALL – Bid $57.50 @ 2.50
CALL – Ask $55.00 @ 5.00 = $2.50 Premium
X 100 = $250.00

CLOSE premium ($250) Minus OPEN premium ($150) = $100 Profit.

WANT:
1. Stock price to increase
2. Stock price to pass both strike prices.
3. Both strike prices in-the-money.

 

HOW TO CALCULATE BULL CALL VERTICAL SPREAD — LOSS

MAXIMUM Loss (cannot lose more than this):
The initial amount you paid for Premium when opening
the spread ($1.50 X 100 = $150)

 

 

HOW TO CALCULATE BEAR PUT VERTICAL SPREAD – PROFIT

MAXIMUM PROFIT (cannot make more than this amount)

1. Take the DIFFERENCE in strike prices
(Must be out-of-the-money)

2. Less the Premium (debit) paid.
Example to calculate profit:

Example to calculate profit:

Stock price: $41.00
OPEN Order: PUT – Ask $40.00 @ 3.50
PUT – Bid $35.00 @ 2.00 = $1.50 Premium
X 100 = $150.00

Stock Price: $34.00
CLOSE Order: PUT – Ask $40.00 @ 7.50
PUT – Bid $35.00 @ 2.50 = 5.00
X 100 = $500.00

CLOSE premium Minus OPEN premium $150.00 ($1.50 X 100)= $350.00 Max Profit

WANT:
….Stock price to DECREASE.
…Both Bid and Ask to be out-of-the-money.

 

HOW TO CALCULATE BEAR PUT VERTICAL LOSS

MAXIMUM Loss (cannot lose more than this amount):

The initial amount you paid for the Premium
when opening the spread- $150.00

 

Please scroll way down to: “How to Close a Vertical Spread Order”

 

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