"Debit Call Spread Training" Written by John DeCamp & Andy Koestner Sat. 11/15/2013 - 10:44PM. This example is a Debit Call Spread on YELP. Note that we only did one contract pair and One contract contains 100 shares, so if the Debit Call Spread cost $7.41 per share (see example below), our investment was 100 * $7.41 = $741. We pay $9.99 per trade (Spreads are considered one trade) plus $0.75/contract, so the fee for a one contract spread is $11.49, which we rounded to $11. This equals $0.11 / share at the contract quantity of 100 shares.
Example of a Debit Call Spread Trade: Date and Action: 9/27/13 Bought Oct 19 $57.50 call for $11.60 YELP at $68.05, so time value premium paid (above intrinsic value) is $11.60 - ($68.05 - $57.50) = $1.05
9/27/13 Sold (to open) Oct 19 $67.50 call for $4.30 YELP at $68.05, so time value premium earned (above intrinsic value) is $4.30 - ($68.05 - $67.50) = $3.75 YELP was in an uptrend (50 EMA above the 100 EMA) AND it had dipped toward the middle of the Bollinger Bands, along a trend line from previous dips in the uptrend. It is important to select the Strike price carefully for the High priced Call that you sell. The closer you set this this Strike price to the current Stock Price means the sooner you will LOSE money on this Debit Call Spread if the stock price goes down. If you set this Strike price at a recent Low price that you verify from the Yahoo Finance chart, then you are protected against any normal price drops that may occur again if the stock re-traces the current trading range. Click HERE to See this in a Yahoo Finance chart
Cost (debit) of a $10 spread $(67.50 - 57.50) was ($11.60 - $4.30) +$0.11 fee = $7.41
Break even is where the short call (sold) expires worthless ($4.30) and the long call (bought) still has $7.41 - $4.30 = $3.11 worth of value. In this case, that would be if the stock were at $57.50 + $3.11 = $60.61. This is a fairly low risk strategy. The break-even point is 11% below the entry price of $68.05, and the stock price was in an uptrend. However, a loss obviously can happen, so monitoring your trades is important.
The stock went lower the next day, spent several days higher, than dipped further but didn't go below the uptrend line drawn from the bottoms of dips at July 31 and Sep 3. On Oct 16, it was above $67.50 at about $69 and very near expiration, so we closed the trade.
Date and Action: 10/16/13: Sold Oct 19 $57.50 call for $12.27 10/16/13: Bought (to close) $67.50 call for $2.77
Credit was $12.27 -$2.77 - $0.11(fee) = $9.39. Return was $939 - $741 = $198 ROI: $198/$741 = 26.7% (In 3 weeks)
Download our Debit_Call_Spread_Calculator.xls spreadsheet to show all these trade dollar values in a simple and easy to follow format. Use this spreadsheet to compare options you are considering. Click HERE to Download Spreadsheet
Click HERE for Free Optionistics Screener for Stock Options
Click HERE for Screenshot of Starting Parameters for CALLs to Use with Optionistics screener
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John DeCamp is founder, chief market analyst and webmaster of Ultimate Stock Finder.

Debit_Call_Spread_Calculator.xls Copyright 2013 by John DeCamp & Andy Koestner All Rights Reserved