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We will explore an option spread strategy that can profit in up, down or flat markets. Call option spreads have a long position and a short position. The long position profits as the underlying stock moves up in price. The short position profits as the underlying stock moves down in price. The short position provides downside protection if the underlying stock declines in price.
The Option Spread Analysis below displays the profit potential for an actual option spread trade that we own for the Emerging Market ETF. We purchased the EDC 107-Strike call and sold to open the EDC 115 Strike call. This created a bullish option spread.
This analysis reveals the profit potential for this option spread trade assuming various price changes for the Emerging Market ETF at option expiration from a 10% increase in price to a 10% decrease in price. The analysis reveals:
EDC Up at all at Expiration = 35.6% Return
EDC Flat at Expiration = 35.6% Return
EDC Down 10% at Expiration = 8.9% Return
Profiting on your option trade when the underlying stock/ETF is up, down or flat will result in a higher percentage of winning trades and can give you the confidence you need to become a successful trader. Learn how to set up option spread trades that can profit in up or down markets.