Last Friday after GOOGL closed at $1155, I placed a bull call spread virtual trade as follows: Sell to open 1 contract (call) at a premium of $5.80 and a strike price of $1170 Buy to open 1 contract (call) at a premium of $10.20 and a strike price of $1160 Net debit $4.40 Current market price: $1167 Expiration is this Friday. In the virtual trade system, it shows that my current net gain is $50, but I thought my current net gain would be $700-$440=$340. What did I understand wrong? Also, would my max gain be happening when the market price gets to $1170? Is my max gain $1000-440=$560? And my max loss is $440+commission? I know this is probably not a good trade and my gain loss ratio is probably not good. Just trying to learn how this works exactly. Thanks for the help.
Using Yahoo quotes: Sell 1160 call - current ask $12.80 Buy 1170 call - current bid $7.90 Credit $490.00 - Debit $440 = $50 unrealized gain Commissions not included IMO ......I think it's a good trade.
ah I see, I didn’t realize the current gain is based on current bid and current ask. That makes sense. And good to know! I thought it’s calculated based on the logic that if it had expired now with the current market price one would exercise the buy contract and not the sell contract so I was thinking about it that way. Would my max gain take place when stock price gets to $1170? Thanks for helping me understand this!
Your max gain will come likely in the waning moments of the options life. Imagine goog at 1169.95 with 1 hour to go, that short strike will be so volatile in terms of delta so you can't capture your max gain yet. With 15 minutes to go, you will then see your profit graph accelerate towards max as minutes tick by. Those pnl calculation you laid out earlier assume all extrinsic values are squeezed out after expiration.