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Options Strategy/Question on Credit Spread?
Lets say stock XYZ is at $27 and I'm looking at calls that expire in 30 days
Say the Jan $25 cost $2.50 and the Jan $26 cost $1.75
If I buy the $25 and Sell the $26 as long as the stock closes above $26 would my profit be:
$.25?
$1 (delta between buying and selling the calls) minus the .75 to enter the order? Is there a strategy for this?
Thx
1 Answer
- DavidLv 78 years agoFavorite Answer
Your question is about a "Credit Spread," but I think you mean "debit spread." Do you know the difference?
According to your example, if you buy something for $2.50, there is an outflow of money from your account (a resulting debit). If you sell something for $1.75, there is an inflow of money to your account for a resulting credit to your account. The outflow is more than the inflow, so the NET result is a debit. This is the most common form of call spread, also known as a vertical spread (It is so common, they don't call it a "debit spread," because "debit" is understood, but you can call it that for clarification).
There's no way to know if your example is in error or your question is in error, since the example is not connected to anything specific or in reality. It's so easy to find a real-life example, and there is no doubt what the numbers are and everyone (including you) can check your work and check with reality. Using FB would be close to your numbers, for example: http://finance.yahoo.com/q/op?s=FB&m=2013-01
A trader is specific and exact and rooted in reality. If you can't do that, then you will never become a trader and any question about it is moot.
