I am new to options and I have trouble for a call credit spread. How do I close out the position. I get pretty confused and I am not sure if I am making my profit. Can you help me with that?


A CALL credit spread means that you sold an option to get premium and bought another further out of the money at a lower price to protect yourself and lock in a maximum loss. You received a credit because the option you sold was more expensive than the one you bought. You’ll have a profit when the value of the short option (the one you sold) loses value, The long option will lose value too, but it doesn’t have much left to lose anyway, which is why you have a better than 50/50 probably of profit. Even 68% POP if you did your spread well.

Now, to close the position, you simply buy back the short CALL and sell the long CALL. The cost of closing the trade should be less than the credit you received, leaving you a profit.

If the trade went against you, you would be paying more to close the trade. But another way you can handle that is to roll the trade forward to the next month, usually with a credit. That would buy you more time.

Remember, option premium erodes over time, so you eventually should have a profit buying back at a lower price as long as the underlying stock doesn’t have an extreme move.

Updated on April 27, 2020

Original Article:

Profitable Stock Option Trading With the ThinkOrSwim Platform
By Glenn Stok

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