Spreads / Combos/ Straddles Flashcards
Spreads
Butterfly Spread - Loss of $
Stock price rises above or falls below the B/E Points
Butterfly Spread - Some Profit
Stock remains between 2 B/E points
Butterfly Spread - Max Profit
Stock is at middle strike price @ expiration
Butterfly Spread - How is profit realized?
Stock is stable
Butterfly Spread
2 spreads established simultaneously
- 1 bullish
- 1 bearish
Vertical Spreads
Buy 1 ABC March 30 Call
Write 1 ABC March 40 Call
Net Credit Spread - Maximum Loss
Difference in strike prices
Net Credit Spread - Maximum Gain
Premium
Net Credit Spread - B/E
Between 2 strike prices
Goal of Net Credit Spread
Wants spread to narrow
Net Credit Spread - Dominant Leg
Higher Premium
Net Debit Spread - Maximum Loss
Premium
Net Debit Spread - Maximum Gain
Strike price - premium
Net Debit Spread - B/E
located between 2 strike prices
Goal of Net Debit Spread
Wants spread to widen
Net Debit Spread - Dominant Leg
Higher Premium
Diagonal Spread
2 options of the spread have different strike prices & different expiration months
Time Spread
2 options with same strike price, but different expiration months. Also called HORIZONTAL, calendar, date spread
Price Spread
Options have same expiration month, but different strike prices. Also called VERTICAL, dollar spread
Put Spread
Both options are puts
Call Spreads
Both options are calls
Spread
Simultaneous sale & purchase of 2 calls or 2 puts of same underlying security, but expiration months and/or strike price are different
Combination
Straddle position with contracts that have different exercise prices and/or different expiration months
Short Straddle
Expect price of stock to be STABLE
