Option Strategies
Overview

## Sample Payout Diagram ## Legs

• Sell Put, Strike B
• Sell Call, Strike D

## Strategy Description

It's possible to establish the strategy for either a credit or a debit initially, but both amounts would be relatively small.

In the diagram, you're buying the call spread with a long call on strike C and a short call on strike D. The put spread would be buying a put at strike A and selling a put at strike B. Usually, the distance between strike A and B is the same as the distance from strike C to D.

## When to Use It

You would use the strategy if you are bullish on the stock by expiration and have a price target. You are selling a credit put spread, so your expectation is that there is low risk of the price going below your put strike, but you are limiting your risk to a set amount if the stock tanks unexpectedly.

## Break-Even Points at Expiration

If you establish the strategy for a net credit, the break-even point would be to the downside, and it would be equal to the short put strike (strike B) minus the amount of the initial credit.

If the strategy is for a net debit, then the break-even point would be to the upside, equal to the long call strike (strike C) plus the initial cost of the strategy.

## Max Gain

The maximum gain on the strategy is capped, and is equal to the distance between the call strikes (strike C and strike D), plus any initial credit received from establishing the strategy. If the trade was for a net debit, then the max gain would be the distance between the strikes minus that cost. The max gain is achieved when the stock price goes above the upper call strike (strike D).

## Max Loss

The maximum loss on the strategy is limited to the difference between the put strikes (strike A and strike B), minus any initial credit received. If the strategy was established for a net debit, then the max loss is the difference between the strikes plus the initial cost. The max loss is experienced when the stock goes below the lower put strike (strike A).