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What are the differences in a bull call spread and a bull put spread? Which has a maximum loss that is the debit originally paid for establishing the position? Which has a maximum gain that is the credit taken in when the position is established?

Don't know? The PHLX.com's Strategy Screener will tell you this and much more.

Many traders gravitate to the CBOE site for educational information on options, but traders might be surprised at the easy reference tool provided by the PHLX's Strategy Screener. It's a handy resource for those first learning about different options strategies. It's also a great tool for those who have long been trading one type of strategy and would like to brush up on the particulars of another.

Click on any of the strategies from the Strategy List, and you see a chart of the profit/loss potential at expiration, such as the one below for a bull put spread that is short one 60 put and long one 55 put.

Net Position at Expiration:

Click over to the bull call spread and you'll see that the shape of the chart is identical. One hypothetical example of a bull call spread was established by being long a 60 call and short a 65 call, but the similarities in shape remain obvious.

Net Position at Expiration:

Buttons on the top of each strategy's page allow traders to check out various parameters of each strategy.

Strategy Parameter Buttons:


Click on the "Max Loss" button for the bull call spread and you find the answer to one the questions that began the article.

Max Loss for Bull Call Spread:

As explained on the site, the bull call spread's maximum loss is the debit paid when the position was established, plus the commissions paid.

That information as well as the maximum gain is also included in a quick reference at the bottom of the page. Many who know the basics of establishing a position still might find helpful the discussions of how volatility and time decay impact the spread. I've known many traders who establish positions without knowing their assignment and expiration risks, and this site explains those succinctly.

Had enough of the basics? Then punch the "Launch Interactive Analysis" button. Imagine that just before May's option expiration you'd established a SOX bull put spread by selling a June 440 put and buying a June 430 put, and that you have a rule that you'll close out a spread if the underlying moves within five points of your sold spread ten days before option expiration. The position simulator allows you to estimate how much profit or loss you would have if the SOX were to drop to $445 ten days before option expiration, something that the SOX nearly did Wednesday of this week. The left side of the screen allows traders to edit positions and settings, including price on the test date, days to expiration and estimated volatility.

Position Simulator:

With those parameters set, the left side of the page produces a set of profit-loss information, including a chart and a table.

Profit-Loss Information:

The simulator estimates that if a trader wanted to exit the bull put spread if the RUT hit 445 ten days before opex, with volatility at 29 percent, the trader would take a loss of $194 plus commissions for each options contract.

I actually did establish this bull put spread just before May's expiration. At Wednesday's close, with the SOX at 448.26, the bid and ask for closing out the position by buying back the 440 put and selling the 430 were 2.40 x 2.90. I had taken in $0.50 credit when establishing the spread, so an estimate of a $194.00 loss per contract was probably a conservative estimate, and that's probably because volatility increased with Wednesday's steep decline. Because it's sometimes hard to get out of one of these positions on the SOX without paying something at or near the ask, the loss probably would have been more in the $250.00 range by the time the SOX had dropped another few points, depending on volatility and other factors. While it might not be wise to trust these figures implicitly, the estimate gave some idea of the loss that might be incurred. The helpfulness in exploring how time, volatility and the underlying's price impact options positions can't be denied. Neither can this tool's ease in use.

Traders should spend some time familiarizing themselves with the risks and parameters of any options strategy they're considering. The PHLX.com site provides one way of doing so.
 

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