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Option spreads, plain notes
Short notes on seven common option plans. Each one walks a $100 stock and opens the builder on that plan.
By M.M. · 2026-11-05
These are teaching notes. The prices come from a textbook formula, not from an options exchange. Open the options payoff builder if you want to change the stock, the strikes, or the volatility.
Bull call spread
You buy a call and sell a higher one. The sold call cuts the cost, and it also caps the gain.
Bear put spread
You buy a put and sell a lower one. You pay a debit for a bet on a fall, and the gain is capped.
Bull put spread
You sell a put and buy a lower one. You take in a credit, and you want the stock to stay up.
Bear call spread
You sell a call and buy a higher one. You take in a credit, and a rally is capped rather than open ended.
Long straddle
You buy a call and a put at the same strike. You need a large move, and you do not pick the direction.
Iron condor
You sell a put spread and a call spread. You take in a credit and you want the stock to stay in a range.
Covered call
You hold the shares and sell a call. The premium is income, and the call caps the upside.
The model uses one volatility for every strike, a flat risk-free rate, and no dividend. A live option quote will differ. Each contract here covers one share. A listed equity contract usually covers 100 shares.