Selling Credit Call Spread - I'm Obviously Missing Something

A

Anderson317

I'm a newbie just starting to read as much as I can. I was reading about vertical spreads and started playing around in my paper money account to get a feel.

I was looking at the 24 May Weeklys for SPY - Selling 238 and Buying 240 for a price of 1.22 (10 contracts on each side). When I look at the order confirmation box it gives me the following:

Credit = $1,205 ($1,220 - $15 commission)
Max Loss = $780

2e34mtx.png


My interpretation can't be right. Even if the trade went completely against me and SPY rose to 241+ I would still make $425????

Obviously I'm missing something. Help me see the error of my ways.

EDIT: Is it that if SPY goes to 241+ then the loss would be $1,220 + $780 = and the account would be debited $2,000? If that is the case then why is the buying power effect only ($780)?
 
Look at the position using the "Analyze" tab under the "Risk Profile" to gain a better understanding of the PnL expectations with changes in underlying price.
upload_2017-5-12_12-11-2.png


Note that $2000 - $780 == $1220 (your credit); or more intuitive: 2000-1220=780.
 
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IF spy goes thru the moon, you will be assigned the 238 and your long 240 will be auto-exercised so you pnl will show $-2000 stock loss BUT you got $1220 in credit making your loss $780...
 
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