Do the Math: Calculating Risk and Potential Profit on .

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• Maximum risk
• Option Finder
• Dividend Capture using Covered Calls
• Implied volatility impact on a Bull Call Debit Spread
• Credit and Debit Spreads
• What is Bull Call Spread?

Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas’ experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning.

Options investors may lose the entire amount of their investment in a relatively short period of time. The following strategies are https://www.bigshotrading.info/ similar to the bull call spread in that they are also bullish strategies that have limited profit potential and limited risk.

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If you wish to receive the dividend, you must own the stock by theclose of market on the day before theDividend Ex-Date. Many times, a covered call is exercised early so the buyer canown the stock and collect the dividend. This typically happens to ITM options the day before the Dividend Ex-Date. bull call spread calculator I find that the best way to help establish the grounds for a meaningful comparison is through the use of an example. 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.

• This CORE intermediate call debit spread sample bot template is designed for traders who have a basic understanding of options trading and the autotrading platform.
• The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice.
• But look on the bright side if that does happen — you played it smart and made a profit, and that’s always a good thing.
• They would find out things like the probability of profit, probability of hitting their target return and the probability of total loss.
• This would create a long butterfly and allow the position to profit if the underlying price continues to decline.

However there has been a sudden decline in the stock price, so much so that the stock price is now at the 2nd standard deviation. There is no fundamental reason backing the stock price decline, hence there is a good chance that the stock price could revert to mean. This makes you bullish on the stock, but the fact that it there is a chance that it could spend more time near the 2nd SD before reverting to mean caps your bullish outlook on the stock. Given this you expect the stock price to react positively to the result announcement. However because the guidance was laid out in Q2 the market could have kind of factored in the news. This leads you to think that the stock can go up, but with a limited upside. ProfitabilityProfitability refers to a company’s ability to generate revenue and maximize profit above its expenditure and operational costs.

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It is interesting to compare this strategy to the bull put spread. The profit/loss payoff profiles are exactly the same, once adjusted for the net cost to carry.

Please contact a tax advisor for the tax implications involved in these strategies. Also, see our guide to understanding the basics of reading candlestick charts and option trading strategies. However, successful option traders generally focus on probabilities and take into consideration reality. The following is the profit/loss graph at expiration for the Bull Call Spread in the example given on the previous page. The net effect of this transaction is that the trader has paid out $42 ($60 paid – $18 received).

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