Old Playboy joke goes here. But yeah, wow...that era has passed.
Anyway...buying spreads involves trading in put options (predicting the price will go down) or call options (predicting the price will go up). A spread strategy is carried out by purchasing one put or call option, while at the same time selling another put or call option with a higher strike price.
The investor might decide to do a bull call spread by buying a call option with a spread between a lower exercise (strike) price and premium than the option that will be sold.
For example, SuperheroLifeInsurance, Inc.’s stock price is expected to go up, so you buy a call option at a strike price of $50 and a premium of $150. You will get your bull spread if you sell a call option on the same stock with a $60 strike price and a premium of $100. Both must have the same expiration date.
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Finance: What Is a Call Option?25 Views
finance a la shmoop. what is a call option? option? option, where are you? okay
yeah yeah. not phone options, call options. and a close but no cigar. a call option [man smokes in a tub of cash]
is the right to call or buy a security. the concept is easy the math is hard.
you think Coca Cola's poised for a breakout as they go into the new low
calorie beverage business. their stock is at 50 bucks a share and you can buy a [man stands on a stage as crowd cheers]
call option for $1. well that call option buys you the right
to then buy coke stock at 55 bucks a share anytime you want in the next
hundred and 20 days. so let's say Coke announces its new sugarless drink flavor
zero it's two weeks later and the stock skyrockets to fifty eight dollars a
share. you've already paid the dollar for the option now you have to exercise it. [man lifts weights]
so you buy the stock and you're all in now for fifty five dollars plus one or
fifty six bucks a share and your total value is now fifty eight bucks. well you
could turn around today and sell the bundle that moment, and you'll have
turned your dollar into two dollars of profit really fast. and obviously had the [equation on screen]
stock not skyrocketed so quickly well you would have lost everything. still you
lucked out and now you're sitting on some serious cash, courtesy of your call [two men in a tub of cash]
options. as for Coke flavor zero turned out to be nothing more than canned water.
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