How to Trade a Long Call Vertical Spread

spreadThe Long Call Vertical Spread is a vertical spread. It is an option spread strategy whereby the option trader purchases an option and simultaneously sell an option of the same class. Select the same underlying security, same expiration date, but at a different strike price.

We like to sell option to receive options premium. you can sell naked options or sell options spreads. The benefit of spreads is that you do not have spend much capital and you are protected for much loss.

Long Call Vertical Spread

When Implied volatility is not there we may play the long call vertical spread. A long call vertical spread is a bullish, defined risk strategy made up of a long and short call at different strikes in the same expiration.

Directional Assumption: Bullish

Setup:
– Buy ITM Call that is In The Money
– Sell OTM Call that is Out Of the Money

    debit spreads

 

 

 

 

Ideal Implied Volatility Environment: Low

Max Profit: Distance Between Call Strikes – Net Debit Paid

Max Loss: is the debit you paid

How to Calculate Breakeven(s): Long Call Strike + Net Debit Paid

 

Typically you do not want to pay to much for a credit spread. Therefore enter this trade only in low volatile environments. Watch the video about debit spreads.

 

Conclusion

Long Call Vertical Spread is a defined risk trade. It is less risky than buying options and has small probability of profit of around 50%. Typically use this kind of options strategy in a low IV environment. You enter these trades when you have a directional assumption.

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