Long Call Spread

Long call spread is the option strategy with limited risk and profit, which lies in the simultaneous buying and selling 2 calls on one asset with higher/lower strikes and the same expiration.

This option strategy is usually used when an investor is bullish on the market, but there are some doubts on the price movement potential above the certain price level. For this purpose, he buys a call to earn profit from the upward movement and sells another call with the strike price at the strong price level the market will hardly break. Moreover, this strategy allows an investor decrease the premium paid that will be less than in ordinary long call option.

Long Call Spread

Suppose, someone executes long call spread by buying the call option for the premium of $3.5 and selling another call for the premium of $1.5. Strike prices of these contracts are $90 and $100 respectively. So, the net premium paid is $2 ($3.5-$1.5). The break-even point equals $92 ($90+$2). Thus, an investor makes profit if the stock exceeds the price mark of $92, the maxim profit occurs when the price rises to the level of $100, and it won’t rise if the price rises above this price mark. He loses money if the price goes lower than $92, and the maximum loss is limited to the net premium paid, that is $2, and occurs if the stock price is below $90.

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