Option Strategies Details
Sell a Call and buy a further OTM Call
1. Speculate on a neutral to slightly-decreasing price and a neutral or slightly-decreasing volatility
Neutral to Down
Neutral to Down
Strike Price of the sold (short) Call plus the Premium (credit) received
Width of the credit spread minus the credit received
same as Max Contract Loss
Call Credit Spread
Other names
You sell (short) a Call and buy (long) a further OTM Call
Description
A trader who wants to speculate on a neutral to slightly-decreasing price with a neutral to slightly-decreasing volatility can sell (write) a Call Credit Spread. The trader receives a credit for the whole position, called a premium, though this credit is smaller than the credit associated with selling a Call alone. In exchange for this reduction, the max loss of a Call Credit Spread is limited to the width of the spread plus the credit received.
Suppose stock XYZ is trading at $129. You forecast a small decrease in XYZ price and a small decrease in volatility.
You sell a $131 / $132 Call Credit Spread (selling the $131 Call and buying the $132 Call) for a $0.40 credit to express this view. Your breakeven XYZ price at expiry is $131 (short Call of the spread) + $0.40 (premium received) = $131.40, but since the time component of your trade plan may not extend all the way to expiration you should be prepared to sell to close at a variety of XYZ prices as the market value of your $131 / $132 Call Credit Spread changes.