The trading math for call and put options vertical spreads is first determined by the spread strike width, and whether it is long or short. Since these are covered spreads, the maximum loss will be the strike width minus the debit paid or the credit received.
This options trading video discusses 4 trade types: (1) call buy (2) put buy (3) call short (4) put short. The spreadsheet profit graph is used to show the trade math to expiration and the risk-reward of each of these trades.
Options basics video discussing the option definitions, types, and contract components, along with the option price valuation for intrinsic value and time value.
The option greeks, delta, gamma, theta, and vega, are output from the options pricing formula. These different components provide information that can be used for projecting options price movement and trade selection.
Options pricing video that introduces the option greeks, implied volatility, and theoretical value projections using our options trading spreadsheet.
In contrast to the math to expiration and profitability for long options being based on intrinsic value, the option math for short options is based on time value – the amount that you sold the option for that is time value at expiration is the profit in your trade.
Understanding long options trading math to expiration is the starting point for understanding other trading math, like figuring out how much and in what direction an option day trade will move. The value of long options at expiration is based on its intrinsic value, or the amount the option is in the money at that time.
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