Call Bull Spreads
Chapters in this video
- 0:00 The bullish problem: naked calls are too expensive
- 0:57 The exact build and why it is a net debit
- 2:27 Buying the strong right, selling the weak right: the VIP pass analogy
- 3:28 How the spread widens as futures rise
- 4:03 Maximum loss capped at the debit
- 5:00 Maximum profit: strike difference minus debit
- 5:52 Breakeven and the max-profit-plus-max-loss math check
- 6:40 Exam trap 1: debit, not credit
- 7:10 Exam trap 2: widen, not narrow
- 7:41 Exam trap 3: raw strike difference minus nothing
- 8:12 Why Trey caps his upside: protection and sleep-at-night risk management
- 9:04 Rapid-fire exam recap
What this video covers
- Why a call bull spread is a net debit position and how selling the higher-strike call finances the more valuable lower-strike call
- The exact build: buy the lower-strike call, sell the higher-strike call, same expiration, same underlying futures
- How the National Futures Association (NFA) annotates this as "spread to widen" and why a debit spread profits as the gap widens, not narrows
- Maximum profit formula: strike difference minus the net debit, reached when futures settles at or above the higher strike
- Maximum loss formula: the net debit paid, reached when futures settles at or below the lower strike
- Breakeven calculation: lower strike plus the net debit, and the math check that max profit plus max loss must equal the strike difference
- The three exam traps: calling it a credit position, confusing widen with narrow, and reporting the raw strike difference instead of strike difference minus debit
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