1. What is a Call Credit Spread?

A call credit spread is an options trading strategy that involves selling a call option while simultaneously buying another call option with a higher strike price. This strategy is used when you expect the underlying asset to stay below the lower strike price.

2. How Does the Calculator Work?

The calculator uses the call credit spread formula:

Where:

• Upper Strike — Strike price of the long call option
• Lower Strike — Strike price of the short call option
• Credit — Net premium received for the spread
• 100 — Multiplier for standard options contracts

Explanation: The maximum loss occurs when the underlying asset's price is above the upper strike price at expiration.

3. Importance of Calculating Max Loss

Details: Understanding your maximum potential loss is crucial for risk management in options trading. It helps traders determine position sizing and whether the potential reward justifies the risk.

4. Using the Calculator

Tips: Enter the upper strike price, lower strike price, and net credit received in USD. All values must be positive numbers, with upper strike greater than lower strike.

5. Frequently Asked Questions (FAQ)

Q1: What is the maximum profit potential?
A: The maximum profit is the net credit received when entering the spread, multiplied by 100.

Q2: When does this strategy make sense?
A: This strategy works best when you expect the underlying asset to stay below the lower strike price until expiration.

Q3: What are the risks?
A: The main risk is the underlying asset rising above the upper strike price, resulting in maximum loss.

Q4: How is this different from a put credit spread?
A: A call credit spread involves calls and profits from the asset staying below the strike, while a put credit spread involves puts and profits from the asset staying above the strike.

Q5: What about assignment risk?
A: Early assignment is possible but uncommon. The short call could be assigned if it goes deep in-the-money.