How much can you make on an option spread? | Options Trading Strategies

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How much can you make on an option spread?

How do you tell how much you have at risk in a spread and how much you could gain? Unlike outright option positions where you have high costs but unlimited gain potential in a long vertical spread you have low cost and limited gain potential. The trade off can definitely be worth it in the right situation but you need to understand what that trade off is before you enter the position.

Maximum gain: The maximum gain in a long vertical spread is simple to calculate. Take the difference between the two strike prices and subtract what you paid for the spread when you entered the position originally. In the video I will run through this calculation on our example on the QQQQ. This is the most you can possibly gain assuming that the stock rises the direction you forecasted.

Maximum loss: Like a long option position, your losses are limited to the amount you spend to enter the trade in the first place. In our example from the video, I paid $.45 per share or $45 per contract to enter the long put spread. This was considerably lower than what it would have cost if I had just purchased the long put alone.

To see the first video in this series on long option spreads, click here.

If you want to know more about how options work and how you can use them in your portfolio check out our options getting started course.

Vertical spreads are great tools and long spreads can turn into big profits. What spread opportunities are you looking for now?

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