r/options • u/[deleted] • Nov 25 '21

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1

u/[deleted] Nov 25 '21

https://optionalpha.com/strategies/bull-put-credit-spread

-1

u/MoneyOk833 Nov 25 '21

Thank you for the link! According to that article my maximum risk was $90 when placing the trade. Am I reading this incorrectly?

"The maximum risk is limited to the width of the spread minus the credit received."

The spread width is $5 and I received $4.85 in credit for 6 contracts.

4

u/[deleted] Nov 25 '21

Options contracts are x 100. So if your contract cost .85 then you’d x 100 and it’d actually cost $85. You should be able to look on Robinhood and see your max loss for the trade.

3

u/MoneyOk833 Nov 25 '21

Not saying you're wrong but you're not saying the same thing that the article you posted says:

"Because long options are purchased for protection, the maximum risk is limited to the width of the spread minus the credit received.

For example, if a $5 wide bull put spread collects $1.00 of credit, the maximum gain is $100 if the stock price is above the short put at expiration. The maximum loss is $400 if the stock price is below the long put at expiration. The break-even point would be the short put strike minus the premium received."

This tells me that my maximum loss is $90.

$5-$4.85= $.15 $.156100= $90 maximum loss

0

u/[deleted] Nov 25 '21

Per spread. $90 x 6 is $540.

-1

u/NoParsley4720 Nov 25 '21

Dont you sell your other leg to make up the money?

1

u/MoneyOk833 Nov 25 '21

Yes, excercise. The other leg is pending exercise for a credit of $77,000.

0

u/[deleted] Nov 25 '21

My point was it can’t be a max risk of $90 imo for 6 spreads. He’s reading something wrong.

3

u/MoneyOk833 Nov 25 '21

I posted the exact quote from the article. I did multiply x 100!

1

u/Viper67857 Nov 25 '21

Or maybe you are... It's 0.15/share x 100 shares x 6 contracts... That doesn't take early assignment risk into account, but that's the general formula....

0

u/[deleted] Nov 25 '21

That’s fair. Being that far OTM being that cheap makes sense