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Options-R-EZ
An effective way to supercharge your investments.

Options-R-EZ - Free options trading analysis tools for better investments.
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                   Bull/Bear Debit Spread Calculator  
       
  Stock Price      
  Stock Volatility *      
  Call or Put Spread    
  (1=Call, 2=Put)    
    Buy Option Sell Option    
  No. of Options Contracts    
  Expiration Date (ex. 12/4/04)    
  Strike Price    
  Option Price    
    Net Debit Max. Profit Breakeven  
     
      Max. Loss   
    Prob. of Profit Expected Return for Positive Return  
     
     
           
  * Volatility      
   - Express volatility as a number vs percent (example 53.5 = 53.5%)  
         
  - The Stock Volatility Link will provide you with historical volatility choices for differenterent  
  time periods. MSFT is the default. Change the stock symbol in the upper left hand  
  corner to your appropriate stock symbol and scroll down and select the volatility that  
  coincides with your preferred time period.      
           
           



Debit Spread Basics

A Debit Spread involves buying one option and selling another option further out with the same expiration date.  This strategy can be used whether you are moderately Bullish or Bearish on a stock. 

 Bullish Example:

Stock is trading at $47.  You are moderately bullish on the stock. 

Buy the $45 Call for $3 (debit)
Sell the $50 Call for $1 (credit)
            Net Debit       $2
                          

This would result in a spread position where you max profit and loss are limited.  The max profit would be $3 and the max loss would be $2 (your debit).  The stock would need to trade above the $50 strike price for you to realize your maximum profit potential for the trade.

Bearish Example:

Stock is trading at $47.  You are moderately bearish on the stock. 

Buy the 50 Call for $3 (debit)
Sell the 45 Call for $1 (credit)
           Net Debit      $2                         

This would result in a spread position where you max profit and loss are limited.  The max profit would be $3 and the max loss would be $2 (your debit).  The stock would need to trade below the $45 strike price for you to realize your maximum profit potential for the trade.


Using the Bull/Bear Debit Spread Calculator

Inputs:

 

Stock Price The current price of the underlying asset that is being analyzed.

Stock Volatility Measures the underlying assets absolute price movement.

Call or Put Spread Designate whether the position you are initiating is a Call Spread or a Put Spread.

No. of Options Contracts The number of contracts for each Buy and Sell position of your spread.  Remember, each contract represents 100 shares of the underlying asset.

Expiration Date – Options are wasting assets that have defined dates of expiration.  The expiration date is usually the third Friday or Saturday of every month.  The Expiration Date link will provide you with an expiration calendar.

Strike Price – The share price that the underlying security can be purchased (Call Option) or sold (Put Option) by the option holder upon exercise of the option contract.

Options Price The option premium price for each position.  For Buy positions, you general buy at the ask. For Sell positions, you generally sell at the bid.

 

Outputs:

 

Net Debit The amount of money that is debited from your account to initiate the position.  This is your maximum loss.

Max. Profit The maximum gain you could achieve if the stock price moves as you forecasted.

Breakeven – The market price that a stock must reach for the options buyer or seller to avoid a loss if they are excercised or assigned.

 

Prob. Of Profit Determines the probability of success for the spread position based on a normal distribution.

Expected Return – The return that an investor might expect to make on an investment if he/she were to make exactly the same investment many times throughout history.  Ideally, you would like this value to be a positive percentage.  For high probability credit spreads, it may be difficult to achieve a positive expected return however, if you understand your maximum loss required for a positive return, you can exit your position accordingly if the price moves outside of your target. 

Max. Loss for Positive Return – The theoretical loss your position can withstand to achieve a positive Expected Return. 


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Options involve risks and are not suitable for all investors.  Option trading can be speculative in nature and carry substantial risk of loss. Only invest with risk capital.