
1. Risk Parameters of Debit and Credit Spreads

Debit Call Spread (Bullish) 
Debit Put Spread (Bearish) 
Credit Call Spread (Bearish) 
Credit Put Spread (Bullish) 
Description 
Buy call with low strike price, sell call with high strike price. 
Buy put with higher strike price, sell put with lower strike price. 
Buy call with high strike price, sell call with low strike price. 
Buy put with low strike price, sell put with high strike price. 
Maximum Gain 
Futures price equals or exceeds strike price of higher option (in the money) 
Futures price equals or is less than put with lower strike price. (in the money) 
Net premium received 
Net premium received. 
Maximum Loss 
Net premium (futures prices drops below lower option\'s strike price) 
Net premium (futures equals or exceeds strike price of higher option) 
Strike price –net premium (Futures contract exceeds higher strike price) 
Strike pricenet premium 
Break Even 
Lower strike price + net premium 
Strike price –net premium. 
Lower strike price + net premium. 
Higher strike pricenet premium received. 
Profitability 
Premium difference widens. 
Premium difference widens. 
Premium difference narrows 
Premium difference narrows 
Other Strategies
Combinations: Akin to straddles but the strike prices and/or expiration dates.
Long  Call and put purchased on same futures contract with different
Short  Call and put sold on same futures contract with different strike prices and/or expiration dates.
2. Risk Parameters of Straddles
As distinct from spreads where an investor articulates a view on the direction of the market (bullish or bearish), the use of straddles signals a certain degree of ambivalence as the trader is unsure of the market's direction and wants to plan for multiple outcomes.

Long Straddle 
Short Straddle 
Description 
Purchase of a Call and a Put on the same underlying commodity, expiration month and strike price. 
Sale of a Call and a Put on the same underlying commodity, expiration month and strike price. 
Maximum Gain 
Unlimited 
Initial premia received. 
Maximum Loss 
The premia 
Unlimited (the short call) 
Breakeven 
Two pointsone above and one below the strike price. Market price=strike price+/total premia paid 
Two pointsone above and one below the strike price. Market price=strike price+/total premia paid 
3. Risk Parameters of Strangles
Similar to a straddle, strangles use different strike prices. Both options are out of the money, requiring more considerable price movement to reach or exceed breakeven. Because both positions are out of the money, this strategy is less expensive.

Long Strangle 
Short Strangle 
Description 
Purchase both a put and a call. Both are out of the money 
Sell a put and a call. Both are out of the money. 
Maximum Gain 
Unlimited 
Premia received 
Maximum Loss 
Premia paid 
Unlimited 
Breakeven 
Call strike price + premium Put strike price  premium 
Call strike price + premium Put strike price  premium 
LOOK OUT!
Calculating return on equity:
For options is done the same was as it is done for futures: (gross profit – amount invested) / amount invested
LOOK OUT!
The covered call, which is equivalent to the protypical futures hedge long future, short spot), will likely be on the Series 3 exam. The rest of the covered/uncovered call/put discussion is just for your background
LOOK OUT!
This will probably be on the Series 3 exam: In a call bull spread or a put bear spread, the investor benefits when the basis widens; in a call bear spread or a put bull spread, the investor benefits when the basis narrows.
Summary And Review

Trading
Tips For Series 7 Options Questions
We'll show you how to ace the largest and most difficult section of this exam. 
Trading
Profiting From Stock Declines: Bear Put Spread Vs. Long Put
If you're bearish, you should compare the risk/reward characteristics of these two strategies. 
Trading
How To Manage A Bull Call Spread
A bull call spread, also called a vertical spread, involves buying a call option at a specific strike price and simultaneously selling another call option at a higher strike price. 
Trading
Which Vertical Option Spread Should You Use?
Knowing which option spread strategy to use in different market conditions can significantly improve your odds of success in options trading. 
Trading
Bear Put Spreads: A Roaring Alternative To Short Selling
This strategy allows you to stop chasing losses when you're feeling bearish. 
Investing
Income Strategies for Your Portfolio to Make Money Regularly
Discover the optionwriting strategies that can deliver consistent income, including the use of put options instead of limit orders, and maximizing premiums. 
Trading
What Is A Bull Put Spread?
Investopedia explains: A bull put spread is a variation of the popular put writing strategy, in which an options investor writes a put on a stock to collect premium income and perhaps buy the ... 
Trading
What's the Strike Price?
The strike price is the price at which a derivative can be exercised, and refers to the price of the derivative’s underlying asset. In a call option, the strike price is the price at which the ... 
Trading
The Butterfly Spread
A butterfly spread is a neutral options strategy with both limited risk and limited profit potential. The strategy involves four options contracts with the same expiration month but with three ... 
Trading
What is a Bear Call Spread?
A bear call spread is an option strategy that involves the sale of a call option, and the simultaneous purchase of a call option (on the same underlying asset) with the same expiration date but ...