You sold a 50/55 call vertical. Is that bullish or bearish?
Bullish
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Bearish
Great Job! Short call verticals are a bearish strategy.
Neutral
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Not enough information to determine
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You bought the 45 put, and sold the 50 put for a net credit of $1.50. What is your maximum profit and loss?
$1.50 profit, $5.00 loss
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$3.50 profit, $1.50 loss
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$1.50 profit, $3.50 loss
Correct! The most you can make on a short vertical is the amount you sold it for. Max loss is calculated by subtracting the credit from the width of the strikes: $5.00 - $1.50 = $3.50
$3.50 profit, $5.00 loss
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You bought the 45 call, and sold the 50 call for a net debit of $2.25. What is your maximum profit and loss?
$2.25 profit, $2.75 loss
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$2.25 profit, $5.00 loss
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$2.75 profit, $5.00 loss
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$2.75 profit, $2.25 loss
Correct! For long verticals, like this long call spread, your max loss is what you paid for it ($2.25). Maximum potential profit is calculated by subtracting your debit from the width of the strikes: $5.00 - $2.25 = $2.75
What is the most you can lose on a short vertical spread?
The amount you paid for it
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The amount you sold it for
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The width of the strikes
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The width of the strikes less the credit received
Correct! The max loss of a short vertical is calculated by subtracting your credit from the width of the strikes.
What is the most you can lose on a long vertical spread?
The amount you paid for it
Correct! The most you can lose on a long vertical is the amount you pay for it. Buy them as cheap as possible!
The amount you sold it for
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The width of the strikes
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The width of the strikes less the debit paid
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What is the most you can make on a long vertical spread?
The amount you paid for it
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The amount you sold it for
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The width of the strikes
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The width of the strikes less the debit paid
Correct! Max potential profit for a long vertical is calculated by subtracting the cost of the spread from the width of the strikes.
You sold a 25 put, and bought a 35 put for a net debit of $2.50. Is this trade bullish or bearish?
Bullish
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Bearish
Correct! The short strike is on the low end, so the spread is bearish. This is how a long put vertical is set up.
Neutral
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Not enough information to determine
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You sold a 25 call, and bought a 35 call for a net credit of $1.50. Is this trade bullish or bearish?
Bullish
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Bearish
Correct! The short strike is on the low end, so the spread is bearish. This is how a short call vertical is set up.
Neutral
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Not enough information to determine
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You sold a 35 call, and bought a 25 call for a net debit of $2.70. Is this trade bullish or bearish?
Bullish
Correct! The short strike is on the higher end, so the position is bullish. This is how a long call vertical is set up.
Bearish
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Neutral
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Not enough information to determine
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You sold a 35 put, and bought a 25 put for a net credit of $1.65. Is this trade bullish or bearish?
Bullish
Correct! The short strike is on the higher end, so the position is bullish. This is how a short put vertical is set up.
Bearish
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Neutral
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Not enough information to determine
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You sold a 35 call, and bought a 25 put for a net credit of $1.65. Is this trade bullish or bearish?
Bullish
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Bearish
Correct! The short option may be on the higher end, but if you look closely you'll notice that this is NOT a vertical spread. Verticals use the same type of option while this one sells a call and buys a put. Both of those legs are bearish strategies, so the overall position is also bearish. Just be aware of this type of situation.
Neutral
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Not enough information to determine
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You sold a 35 call, and bought a 30 call for a net debit of $5.05. Is this trade bullish or bearish?
Bullish
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Bearish
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Trick Question
Okay, I gave this one away! You are correct, this is a trick question. NEVER buy a vertical for more than the width of the strikes when opening a trade. Doing this would lock in a loss, giving you ZERO chance of making any money at all. Your best case scenario is you lose $0.05. Worst case scenario is you lose $5.05!
Not enough information to determine
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You bought a 35/40 call spread for $2.50. You then sold it back for $3.25. What is your final P/L?
$3.25 Profit
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$2.50 Loss
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$0.75 Profit
Correct! Your call spread's value increased by $0.75. Closing it locks it in as a nice profit!
$5.00 Loss
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You sold a 35/40 call spread for $1.50. You then bought it back for $4.50. What is your final P/L?
$3.00 Loss
Correct! Unfortunately, you ended up with a $3.00 loss because you had to close the spread for a greater value than your original credit. $4.50 - $1.50 = $3.00 loss
$1.50 Loss
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$4.50 Profit
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$4.50 Loss
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You sold a 40/45 call spread for $2.00. Which of these closing prices would lock in the highest profit?
$3.00
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$2.00
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$1.00
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$0.10
Correct! Since you sold to open this spread, you want to buy it back as cheap as possible to close it. Buying it back for $0.10 would net you a $1.90 profit!
You bought a 40/45 put spread for $2.00. Which of these closing prices would lock in the highest loss?
$3.00
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$2.00
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$1.00
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$0.10
Correct! You bought this spread for $2.00, so your goal is to sell it back at a higher value. Selling it back for $0.10 locks in an almost 100% loss. You lost $1.90 in total. The most you could lose was $2.00.
You sell a $10-wide vertical spread for $4. What would be a fair probability of profit and probability of loss given the risk?
6% POP, 4% POL
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60% POP, 40% POL
Great Job! Your maximum risk in this case is $10 - $4 = $6.
[$6 ÷ $10] × 100% = 60% POP
100% - 60% = 40% POL
40% POP, 60% POL
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60% POP, 10% POL
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