Newbie credit spread question

B

bonnieann

Hi,
I am new to this and have been reading/studying and making paper trades.
I am curious about what my total loss could be on this spread trade -
Buy to Open 10 contracts of AA Sep 15 2017 44 Call
Last: 1.33, Bid: 1.35, Ask: 1.45, Bid/Ask size: 474X87

Sell to Open 10 contracts of AA Sep 15 2017 46 Call
Last: 0.50, Bid: 0.50, Ask: 0.55, Bid/Ask size: 110X87

total credit $1350

Current Short holdings of
AA Sep 15 2017 46 Call

Estimated after trade
-10
-$550.00
Current Long holdings of
AA Sep 15 2017 44 Call
$0.00
Estimated after trade
10
$1,350.00

is my total credit $1350 and total potential loss $550?
Thanks in advance...
 
If you buy the 44 calls and sell the 46 calls, that is buying the spread, which is s debit, not a credit. The midpoint at end of day is around $0.82. Based on that midpoint, if you buy it, you can lose $820. If you sell it, you can lose $1180, not including fees. This is what the credit spread looks like.

upload_2017-9-5_20-10-30.png
 
Robert,
Thanks so much for the quick reply.
I was actually bullish on this, so I think I reversed it. I should have looked at the puts for the bullish outlook?
 
bonnieann said:
is my total credit $1350 and total potential loss $550?
Thanks in advance...
More...

The spread is a 2 dollar call spread... 44-46... the credit + potential loss need to add up to that... 1350 + 550 = not 2000

Your calculations don't make any sense. How on earth did you get to 1350 credit??

You want to buy the 44 call... 10x at 1.45 (ask) = 1450 invested
Sell the 46 call 10x at 0.50 (bid) = 500 credit
Total = 950 invested

This is not a credit like @Robert Morse said.

So max potential loss at expiry below 44 = 950 (cost base)
Max potential gain at expiry above 46 = 2000 (max value of the psread) - 950 (cost base) = 1050
 
Spread is safe till option expiry day and you "ALMOST HAVE TO" close it before market close of option expiry day. You buy 44 call and sell 46 call and market closes at 45.5 and you believe you are making money and you can sell your shares on Monday and on next Monday stock opens at $35 !!!
 
hajimow said:
Spread is safe till option expiry day and you "ALMOST HAVE TO" close it before market close of option expiry day. You buy 44 call and sell 46 call and market closes at 45.5 and you believe you are making money and you can sell your shares on Monday and on next Monday stock opens at $35 !!!
More...
good point, exercise and assignment, while not catastrophic, only make everything messier...close it out before or on expiration date and it will be easier to manage
 
bonnieann said:
Robert,
Thanks so much for the quick reply.
I was actually bullish on this, so I think I reversed it. I should have looked at the puts for the bullish outlook?
More...

Buying the call spread or sell the put spread would both be bullish bets.
https://www.lightspeed.com/trading-education-center/
When you price these spreads, the midpoint is not always "fair value" or a place you can get the trade done, but it is a good place to start for learning purposes.

Bob
 
bonnieann said:
Hi,
I am new to this and have been reading/studying and making paper trades.
I am curious about what my total loss could be on this spread trade -
Buy to Open 10 contracts of AA Sep 15 2017 44 Call
Last: 1.33, Bid: 1.35, Ask: 1.45, Bid/Ask size: 474X87

Sell to Open 10 contracts of AA Sep 15 2017 46 Call
Last: 0.50, Bid: 0.50, Ask: 0.55, Bid/Ask size: 110X87

total credit $1350

Current Short holdings of
AA Sep 15 2017 46 Call

Estimated after trade
-10
-$550.00
Current Long holdings of
AA Sep 15 2017 44 Call
$0.00
Estimated after trade
10
$1,350.00

is my total credit $1350 and total potential loss $550?
Thanks in advance...
More...

You don't know what you don't know.
 
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