1. What is Option Spread?

An option spread is an options trading strategy where you simultaneously buy and sell options of the same class (calls or puts) but with different strike prices or expiration dates. The spread value represents the difference between the high strike and low strike prices.

2. How Does the Calculator Work?

The calculator uses the simple spread formula:

Where:

• High Strike — The higher strike price in USD
• Low Strike — The lower strike price in USD

Explanation: The spread value represents the potential maximum profit or risk in a vertical spread strategy.

3. Importance of Spread Calculation

Details: Calculating spread values is crucial for determining risk/reward ratios, position sizing, and potential profits in options trading strategies.

4. Using the Calculator

Tips: Enter both strike prices in USD. The high strike must be greater than the low strike for a valid calculation.

5. Frequently Asked Questions (FAQ)

Q1: What types of spreads use this calculation?
A: This applies to vertical spreads including bull call spreads, bear call spreads, bull put spreads, and bear put spreads.

Q2: How does spread width affect risk?
A: Wider spreads typically have higher potential profit but also higher capital requirements and risk.

Q3: Is this the same as the option premium?
A: No, this calculates the strike price difference. The premium is what you pay/receive for the options.

Q4: Can I use this for debit and credit spreads?
A: Yes, the spread value calculation is the same, though the premium paid/received affects the risk/reward profile.

Q5: How does expiration affect spread value?
A: At expiration, the spread value determines the maximum value of the position, but before expiration, time value affects pricing.