Hey fam
I'm hoping to get some help with a position that I have. When NVDA dipped I opened up a vertical bull spread with strikes at 125/130 and expiring on 6th Sep after earnings.
My questions are:
- How do I calculate max possible profit? My understanding is that spreads have capped rewards but I'm not sure how to calculate it.
- How should I handle this going into earnings? Initial plan is to sell 2 on the day of earnings and then let the other 2 ride.
Thanks for any advice!
Calculating max profit for a debit call spread
byu/nikeiptt inoptions
Posted by nikeiptt
2 Comments
Easy. Width of spread, $5 in this case, minus debit paid x 100 x contracts. Your broker should show this amount when opening.
Quick example is a $5 spread – $2.60 debit paid = $2.40 x 100 = $240 max profit per contract. The max loss is the $2.60, or $260 debit paid.
You paid x amount for 125 call
And you got paid y amount for selling 130 call.
Overall you total paid z = x-y
Now total max profit will be when stock is trading above 130
Max profit = (130 -125) * 100
= 500.
Now your ideal net profit is
500 – z .
More example is : if stock trading below 125 you make 0 – z
If stock trading 127 on expiry you make
200-z
And so on