Sell one call, buy two at a higher strike, and you can get paid to open a bet with no ceiling on the upside. This lesson finds the catch: a small rise is the worst case.
After this lesson you can
- Explain why flipping a ratio spread leaves nothing naked
- Find a backspread's worst case, breakevens and margin
- Explain why it wants a big, fast move and rising implied volatility
- Describe a reverse calendar and why its short call ends up naked
- See why a small rise leaves you worse off than a fall, and avoid the five mistakes
Chapters
- 0:00Sell one call, buy two
- 1:24Why nothing here is naked
- 2:28What it pays at expiration
- 3:39Versus a plain call
- 4:52Timing: fast beats slow
- 5:58The strikes set the pit
- 7:03The put version
- 8:19The reverse calendar
- 9:36The reverse calendar's trap
- 10:32Five mistakes
- 11:30The whole lesson on one screen