back

intro to spreads

Long Call Vertical

Analyzing the risk profile of a long call vertical
Long call verticals are a _______ strategy.
Bearish
This answer is incorrect. Please try again.
Safe
This answer is incorrect. Please try again.
Bullish
Correct! Long call verticals profit when the underlying price rises. They are a bullish strategy.
Neutral
This answer is incorrect. Please try again.
You bought the 25/35 long call vertical for $5.25. What is your maximum potential profit and loss?
$4.75P, $5.25L
Correct! The most you can lose on a long call vertical is the amount you pay for it: $5.25. Subtract your max loss from the $10 width to find your max profit: $10 - $5.25 = $4.75.
$5.25P, $4.75L
This answer is incorrect. Please try again.
$5.25P, $10L
This answer is incorrect. Please try again.
$10P, $5.25L
This answer is incorrect. Please try again.
True or false: Properly established long call verticals have a high probability of success.
True
This answer is incorrect. Please try again.
False
Correct. When set up properly established by selling an OTM short leg against an ITM long leg, long call verticals typically have around a 50% probability of success. You are equally as likely to lose as you are to win in most scenarios.
Which of these long call verticals has the greatest profit potential?
A 23/24 spread for $0.55 debit
This answer is incorrect. Please try again.
A 30/35 spread for $1.00 debit
Correct! In this scenario you are buying a $5-wide spread for only $1, giving you a max profit potential of $4. Take note that this position would have a low probability of success – around 20% ([$1 ÷ $5] × 100% = 20%)
A 50/60 spread for $8.75 debit
This answer is incorrect. Please try again.
A 50/60 spread for $6.50 debit
This answer is incorrect. Please try again.
XYZ is trading for $50. Which of these long call verticals will cost the most?
55/60
This answer is incorrect. Please try again.
45/60
This answer is incorrect. Please try again.
45/55
This answer is incorrect. Please try again.
40/55
Correct! This spread is wider than options 1 and 3, and as wide as option 2. It is also the deepest ITM. Combining all these factors would give this vertical the highest price.
What happens when we pay extrinsic value on trade entry?
We improve our break-even
This answer is incorrect. Please try again.
We improve our cost basis
This answer is incorrect. Please try again.
We worsen our break-even
Correct! Whenever we pay a premium (another word for extrinsic value), to open a position, that premium works against us. It pushes our break-even further away and lowers our probability of profit.
We lose money
This answer is incorrect. Please try again.
You are trading XYZ and decide to buy a 75 delta call with $0.50 of extrinsic value, and sell the 30 delta call against it for $0.62. What is the net extrinsic value of this long call vertical?
-$0.12
This answer is incorrect. Please try again.
$0.12
Correct! You paid $0.50 for the long, and collected $0.62 for the short. This resulted in a net collection of $0.12 extrinsic value.
-$0.50
This answer is incorrect. Please try again.
$0.62
This answer is incorrect. Please try again.
Would you rather your long call vertical expire ITM, ATM, or OTM?
ITM
Correct! A long call vertical expiring ITM would be at maximum potential profit.
ATM
This answer is incorrect. Please try again.
OTM
This answer is incorrect. Please try again.
Calls don't expire
This answer is incorrect. Please try again.

back

intro to spreads
Open a Tastyworks Brokerage Account