A 10 point credit spread selling to open a 40 call and buying to open a 50 call for a credit of .50.?

Question

A 10 point credit spread selling to open a 40 call and buying to open a 50 call for a credit of .50. What are the risks, requirements, max gain and max Loss?

Answer 1

If stock is over 50 at the end of the option period, you will exercise your call and get stock at 50 so that you cal deliver it at 40 for a loss of 10.  For this risk of 10, you got 50 cents.  You must be really sure that stock is going to stay below 40.

Did you figure in commissions?

Answer 2

I am assuming the underlying is a stock that does not pay dividends. I am also ignoring transaction costs.

Requirements:

A margin account authorized to trade spreads and $950 margin available.

Max gain:

$50 if the stock is under $40 at expiration.

Max loss:

$950 if the stock is over $50 at expiration.

Risks:

Losing money if the stock is over $40.50 at expiration.