The option strategy consists of four parts:
- Buying to Open a Put option for expiry date 18-Aug-23 at a strike price of 4560 USD.
- Selling to Open a Put option for expiry date 18-Aug-23 at a strike price of 4555 USD.
- Selling to Open a Put option for expiry date 18-Aug-23 at a strike price of 4240 USD.
- Buying to Open a Put option for expiry date 18-Aug-23 at a strike price of 4235 USD.
This strategy profits if the S&P 500 stays between the two inner strikes, which in this case are 4240 and 4555, by expiration.
The net premium received for this trade is 180 USD, the margin impact for this trade is 79.86 EUR. The maximum risk for this trade is -320 USD, with a maximum profit of 180 USD.
The breakeven points for this trade are 4238.2 and 4556.8. The trade has a probability of profit of 63.10% based on the delta's of the short-positions.
As with any strategy, there are always risks involved:
Price Risk: If the S&P 500 index moves significantly and goes beyond the breakeven points of 4238.2 or 4556.8 at expiration, the trade will result in a loss. The maximum loss for this trade is 320 USD, at expiration.
Early Assignment Risk: There is no risk of early assignment with SPX options as they can only be exercised at expiration and always cash-settled (meaning no delivery of underlyings).
Strategy: Vertical Credit Call Spread (Bearish)
The Vertical Credit Call Spread, also called a Bear Call Spread, is a defined risk strategy that aims to profit from a decrease in the stock's price, or a price increase that doesn't surpass the short call of the vertical spread. This is achieved by selling a call option at a certain strike price, and simultaneously buying another call option at a higher strike price to limit potential losses. The maximum profit is the net premium received for setting up the trade, while the maximum risk is the difference between the strike prices minus the net premium received.