bullish crd spread or long call

Discussion in 'Options' started by dojibear, Aug 28, 2003.

  1. I know that comparing to being long on call, bullish credit spread gives a credit, an 'insurance' in case the underlyer goes down (at the same token limiting the profit), less sensitive to price, time and volatility. A good spread should give 63/35 profit/loss. Are there anything else I missed?
    When I go long call, I usually look at 3-6 month expiration (and depending of the market, I usually get out at the next resistance for not losing too much in theta).
    For a bullish credit spread, should I look at the same expiration, i.e. 3 to 6 month contract?

    Cheers!! :)
  2. A 3-6 month credit spread, depending on the structure, can take a really long time to make money. Best to your trade.
  3. ChrisM


    My primary concern for vertical bull spreads is credit/max risk vs. internal price, but this is little more complicated issue.
    Do you short ATM or ITM ?
  4. I am looking at shorting deep ITM put (strike around the next resistance) and buy ITM or ATM put .

    e.g. CELG paper trade
    buy put Jan 40 @ 5.40
    sell put Jan 45 @ 8.40
    credit 3.00
    My calculations give me a profile of max 300$ profit vs. 200$ loss per contract

    buying Jan Call 35 @ 6.20
    debit 6.20

    CELG last trade @ 38.06

    Cheers!! :)
  5. ChrisM


    CELG is on my list due to high volatility :)
    But back to your trade:

    Some time ago I have done studies regarding this issue and believe or not but longer time to expiration did not really increase percentage of profitable trades significantly.
    Also, long call and short vertical bull spread are completely different positions - at many times such volatile stocks can jump fast and eventually falls down while you may still sit on your position. Long call would be nice but you risk 6.20 if stock goes down - something which should be considered.
    Also you must compare "what if scenarios". Vertical 45/40 Jan put will make money if underlying goes up above 42, but there are myriads of option profitable strategies is such scenario.