Become a better investor
Bryce walks me through the advantages of a call spread.
Call spread — Buying a call option with a strike that’s closer to being in the money while simultaneously selling another call option with a strike that’s further out-of-the-money.
An example is to buy the April 16 $81 strike calls for CHWY and then sell the April 16 $88 strike calls for CHWY. The spread or difference between the strikes was determined by the straddle looked at in the previous video.
The most that call spread can be worth is $7 ($88-$81). The most money I could make is $7- (cost of the trade = cost of buying the long call options - the premium received for selling the short option). In this case, it would have been $430 for 1 contract.
Break-even = Strike of long call + premium of long call - premium collected from the short call.
Max Loss = cost of buying the call option - premium received for selling a short option, or $270.