Credit Vertical Spreads
Bull Put Spread
You feel that current circumstances surrounding ZYX are likely to drive up the price of ZYX in the near future. ZYX is currently at $45, and you feel that it will surpass its recent high of $50 before the May options expire in six weeks.
This scenario can be played with a bull put spread.
Trade: Buy 1 May 45 put for $2.70 per share and sell 1 May 50 put for $5.30 per share. This produces a net credit of $2.60 per share.
Credit = $260.
Max risk = $240.
If ZYX is above $50 at the May options expiration, both options will expire worthless and the initial credit of $260 will be yours to keep. This is the maximum possible profit on the trade. In the case of credit trades, the return is calculated from comparing ...