• Home
  • Member Area
  • Helpdesk
  • Question about Victory Spreads

    September 14, 2009 by  
    Filed under Options, Victory Spreads

    Q: In your demo video for this spread you say potential losses should be about $50 or so. You refer to favorable pricing. Would you please explain what you mean by favorable pricing? I have tried several scenarios with stocks that I think might be making a move up but in each case my potential losses were closer to $200. Today I reviewed AU (Anglogold Ashantilt) selling the oct 35 call and buying 3 Jan 50 calls. If the stock settled between 37 and 50 by Oct expiration I would lose money with the worse loss being $183. Not bad but more than $50. Am I missing something? Thank you. PS Am really enjoying the course.

    A: The amount of loss in a victory spread depends on:

    1) volatility at the time of the trade
    2) the number of contracts used
    3) time to expiration

    It sounds like you were using the same example I was as far as contracts go (sold 1, bought 3) so the only differences would be “volatility” and “time to expiration” which would explain the difference in potential loss.

    Comments are closed.