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  • Suggest You - Vertical Spreads - An Imaginary Spread Scenario

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    lish plays of the
    call spreads and the put spreads. You check the pricing of both
    since you are aware that implied volatility and time decay will
    affect both your purchase pr
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    Let's put together what we've been talking about, develop an
    imaginary spread scenario and set it in real life events.

    In October, let’s say that you begin to hear about IJK stock. It
    looks interesting, so you then use a variety of sources to learn
    about IJK: news, charts, outside analysts, internet research
    etc. From your investigations you decide that this stock is
    poised for a strong upward move and you'd like to take advantage
    of it.

    However, each share is $50.00 and you question whether you want
    to put out the capital for enough shares to make the trade
    worthwhile.

    Now is the time to investigate IJK spreads. Since you are
    bullish on the stock, you investigate the bullish plays of the
    call spreads and the put spreads. You check the pricing of both
    since you are aware that implied volatility and time decay will
    affect both your purchase pri
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    stock. It
    looks interesting, so you then use a variety of sources to learn
    about IJK: news, charts, outside analysts, internet research
    etc. From your investigations you decide that this stock is
    poised for a strong upward move and you'd like to take advantage
    of it.

    However, each share is $50.00 and you question whether you want
    to put out the capital for enough shares to make the trade
    worthwhile.

    Now is the time to investigate IJK spreads. Since you are
    bullish on the stock, you investigate the bullish plays of the
    call spreads and the put spreads. You check the pricing of both
    since you are aware that implied volatility and time decay will
    affect both your purchase pr
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    de that this stock is
    poised for a strong upward move and you'd like to take advantage
    of it.

    However, each share is $50.00 and you question whether you want
    to put out the capital for enough shares to make the trade
    worthwhile.

    Now is the time to investigate IJK spreads. Since you are
    bullish on the stock, you investigate the bullish plays of the
    call spreads and the put spreads. You check the pricing of both
    since you are aware that implied volatility and time decay will
    affect both your purchase pr
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    t out the capital for enough shares to make the trade
    worthwhile.

    Now is the time to investigate IJK spreads. Since you are
    bullish on the stock, you investigate the bullish plays of the
    call spreads and the put spreads. You check the pricing of both
    since you are aware that implied volatility and time decay will
    affect both your purchase pr
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    lish plays of the
    call spreads and the put spreads. You check the pricing of both
    since you are aware that implied volatility and time decay will
    affect both your purchase price and your selling price if you
    decide to sell out the spread before expiration.

    Let’s say that you set the spread's maximum potential gain at
    $10.00 using our formula. Then you decide you want to buy a call
    spread, so you buy 10 IJK Nov. 50 calls and sell 10 IJK Nov 60
    calls. The spread is called Nov. 50-60. The spread's cost is
    $3.50, which means you pay $3500 for the trade, inexpensive when
    you consider that to purchase 1000 shares of IJK stock would
    have cost you $50,000!
    Now, you wait and follow the stock price of IJK. If you hold the
    position to expiration, you face the following losses or gains.

    First, if the stock does not move up as you expected and stays
    at $50 or de

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