Bear Call Spread Explained

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ETF Bear Call Spread Options Strategy Explained

Exchange-traded funds (“ETFs”) provide investors with an easy way to reach nearly every corner of the stock market. Those that wish to implement targeted strategies may want to consider enhancing their ETF investing with equity/stock options. These tools make it easier to control risk and better generate profits during almost any market condition [see ETF Call And Put Options Explained].

In this article, we’ll take a look at the bear call spread strategy, which lets investors control risk and profit from moderately bearish market conditions.

What Is a Bear Call Spread Strategy?

Suppose that you believe that the S&P 500 SPDR (SPY, A) will fall over the next month, but you’re not quite sure enough to short sell the stock. After all, short selling involves assuming the risk of unlimited losses if the index rises in value. One way to bet on a decline in SPY’s value with a very controlled risk-to-reward profile is to use the bear call spread strategy [see also How To Hedge With ETFs].

By purchasing one out-of-the-money call option and selling one in-the-money call option, you can create a credit spread that makes money when the index falls in value. The strategy also enables you to limit your losses to the difference between the call options, while the upside is limited to the net premiums received when the position is first established.

The bear call spread option diagram looks like this:

Who Is the Bear Call Spread Strategy Right For?

The bear call spread strategy is ideal for investors that believe an ETF will move lower over a given period of time, but aren’t confident enough to short sell or wish to absolutely control the potential profit or loss on the trade. Unlike the bear put spread that involves a net debit, the bear call spread is ideal for investors that wish to realize their profit upfront [see aslo 13 ETFs Every Options Trader Must Know].

Given these dynamics, the bear call spread strategy is considered to be moderately bearish in nature. The strategy caps maximum profits and losses to create a very controlled trade, relative to outright short selling or more aggressive bearish strategies like writing naked put options.

What Are the Risks/Rewards?

The bear call spread strategy has a very well defined risk to reward profile, given that both the maximum profits and losses are capped. For investors, the key breakeven point to watch and consider can be calculated by adding the strike price of the short call option to the net premiums received when entering into the position (e.g. the credit spread).

The bear call spread strategy’s maximum profits and losses are calculated as follows:

  • Maximum Profit is limited to the premiums received from the net credit spread when entering into the position, minus commissions paid to a broker.
  • Maximum Loss is limited to the difference between the strike price of the long call and the strike price of the short call options, minus the premiums received from entering into the position, plus commissions paid to a broker.

How to Use a Bear Call Spread Strategy

Suppose that you decided to enter into a bear call spread in the aforementioned scenario when the underlying stock was trading at 163.00. To enter the position, you might purchase one out-of-the-money 165 call option for $150 and then write one in-the-money 160 option for $430, resulting in a net credit spread of $280 that represents the position’s max profit potential [see also How To Rescue Your Losing ETF Position With Options].

There are three difference scenarios that could then play out over the next month:

Options Spreads Explained – A Complete Guide

Every options trader should know what options spreads are and what different types of options spreads exist. If you aren’t completely familiar with options spreads, this article will definitely help you out! After reading this article, you won’t only know what an options spread is. You will also be familiarized with all the different options spreads that exist. This is very powerful because if you fully understand options spreads, you will understand ALL options strategies!

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So without further ado, let’s get started.

What Is An Option Spread?

Before we get into the different kinds of options spreads that exist, it is important to understand what an options spread even is. So what is an option spread?

An options spread is an option strategy involving the purchase and sale of options at different strike prices and/or different expiration dates on one underlying asset. An options spread consists of one type of option only. This means that options spreads either solely consist of call or put options, not both. Furthermore, an options spread has the same number of long as short options.

Let me give you a concrete example to make it clear what an options spread is. The following position is an options spread:

  • 1 XYZ short call with a strike price of 100 that expires in 40 days.
  • 1 XYZ long call with a strike price of 105 that expires in 40 days.

As you can see, the just-described options only differ in regards to strike price and opening transaction (one call option is bought and the other one is sold).

Let’s recap the characteristics of an options spread:

  • All involved options are on the same underlying asset (e.g. XYZ).
  • All involved options are of the same type (call or put).
  • An options spread always consists of the same number of purchased as sold options (e.g. 5 short and 5 long).

In other words, the options involved in an options spread only differ in regards to strike price and/or expiration date. This is the case for all options spreads, regardless of kind. So when I will walk you through all the different options spreads in a few moments, keep this in mind.

Even though the options involved in an options spread only differ in regards to 1-2 aspects, it is still possible to create a wide variety of different options spreads.

Next up, I will walk you through all the different kinds of options spreads: vertical spreads, horizontal spreads, diagonal spreads, credit spreads, debit spreads, bull spreads…

Option Spreads Visually Explained

Watch the following video for a visual breakdown of option spreads:

Different types of options spreads explained

What are vertical spreads?

Vertical spreads are options spreads created with options that only differ in regards to strike price. So basically, a vertical spread consists of the same number of short calls as long calls or the same number of long puts as short puts with the same expiration date (on the same underlying asset).

This doesn’t leave too many possibilities. That is also why only four different vertical spreads exist, namely bull call spreads, bear call spreads, bull put spreads and bear put spreads.

These four different vertical spreads can be ordered into different categories:

  • Bull Spreads: Bullish spreads (that profit from increases in the underlying asset’s price).
  • Bear Spreads: Bearish spreads (that profit from decreases in the underlying asset’s price).
  • Call Spreads: Spreads that consist of call options only.
  • Put Spreads: Spreads that consist of put options only.
  • Credit Spreads: Spreads that are opened for a credit (you get paid to open).
  • Debit Spreads: Spreads that are opened for a debit (you pay to open).

A bull call spread is a bullish debit spread, whereas a bear call spread is a bearish credit spread. A bull put spread is a bullish credit spread and a bear put spread is a bearish debit spread.

Here is how the four different vertical spreads are set up:

Bull Call Spread (aka. Long Call Spread):

  • 1 long call
  • 1 short call at a higher strike price (with the same expiration date)

Bear Call Spread (aka. Short Call Spread):

  • 1 short call
  • 1 long call at a higher strike price (with the same expiration date)

Bull Put Spread (aka. Short Put Spread):

  • 1 long put
  • 1 short put at a higher strike price (with the same expiration date)

Bear Put Spread (aka. Long Put Spread):

  • 1 short put
  • 1 long put at a higher strike price (with the same expiration date)

All vertical spreads are defined risk and defined profit strategies which means that you can’t lose or profit more than a certain amount. The amount of risk and potential profit depends on the width of the strikes and on the position of the strikes in relation to the underlying’s price.

To calculate the max risk and max profit of vertical spreads, you need one calculation:

Width of Strikes × 100 − Net Credit or Debit

This calculation reveals the max risk of credit spreads (Bull Put Spreads and Bear Call Spreads) and the max profit of debit spreads (Bear Put Spreads and Bull Call Spreads).

The max profit of credit spreads equals the net credit collected to open, whereas the max risk of debit spreads equals the net debit paid to open.

Vertical spreads are directional strategies which means that they mainly profit from price movement in the underlying asset’s price. That’s also why they are called bull/bear spreads. This means that vertical spreads are a strategy principally used to take advantage of price movement. Nevertheless, implied volatility and time still can influence vertical spreads to a certain extent.

What are horizontal spreads?

Horizontal spreads are options strategies that consist of the same number of long as short options that only differ in regards to the expiration date (on the same underlying asset). In other words, the options involved have the same strike price but a different expiration date.

Let me give you a concrete example to explain what a horizontal spread is:

  • 1 long ABC call with a strike price of 50 that expires in 29 days (front-month).
  • 1 short ABC call with a strike price of 50 that expires in 57 days (back-month).

Just like with vertical spreads, there only exist four different kinds of horizontal spreads, namely short call calendar spreads, long call calendar spreads, short put calendar spreads and long put calendar spreads. As you may have noticed, all of these spreads are calendar spreads. That is also the reason why horizontal spreads also are referred to as calendar spreads.

The setup of these four different calendar spreads is relatively simple:

Long Call Calendar Spread:

  • 1 short call (front-month)
  • 1 long call at the same strike price (back-month)

Short Call Calendar Spread:

  • 1 long call (front-month)
  • 1 short call at the same strike price (back-month)

Long Put Calendar Spread:

  • 1 short put (front-month)
  • 1 long put at the same strike price (back-month)

Short Put Calendar Spread:

  • 1 long put (front-month)
  • 1 short put at the same strike price (back-month)

Calendar spreads are mainly used as a strategy to profit from changes in implied volatility and from time decay. For instance, long calendar spreads profit from increases in implied volatility.

Generally, calendar spreads aren’t a very directional strategy. But depending on the strike selection, calendar spreads can be set up more and less directional.

What are diagonal spreads?

Diagonal spreads are a combination of vertical and horizontal spreads. A diagonal spread is a strategy that consists of the same number of long as short options that have different strike prices and different expiration dates.

The options used in vertical spreads only differ in regards to strike price, the options used in horizontal spreads only differ in regards to the expiration date and the options used in diagonal spreads differ in regards to both strike price and the expiration date.

There are many different ways to set up diagonal spreads. But here are a few concrete examples of possible diagonal spreads.

Diagonal spread example 1:

  • 1 short XYZ call with a strike price of 185 that expires in 27 days (front-month).
  • 1 long XYZ call with a strike price of 190 that expires in 55 days (back-month).

Diagonal spread example 2:

  • 1 long ABC put with a strike price of 78 that expires in 20 days (front-month).
  • 1 short ABC put with a strike price of 72 that expires in 48 days (back-month).

Just like I said before, diagonal spreads are a combination of vertical and horizontal spreads. This means that they try to profit from changes in both the underlying asset’s price and implied volatility/time. Diagonal spreads can be slightly to very directional strategies.

Recap – Options Spreads Explained

It is very important to understand what an options spread is and what different kinds of spreads exist. That’s why I want to recap some of the most important points of this article.

I created the following table to visually explain the different options spreads. Furthermore, this table actually reveals why the different spreads are called the way that they are (horizontal, vertical, diagonal).

Now you should know what different spreads exist. But you might ask yourself the question, which of these spreads is best.

There is no one right answer to this question. Not one spread is better than another. It really depends on the current market situation and on personal preferences. For instance, if you are bullish on a stock and want to take advantage of an up-move, a bull call vertical spread might be a good strategy. However, if you want to profit from a rise in implied volatility and don’t have a certain directional assumption, a horizontal/calendar spread would probably be a better choice…

I hope you understand what I am trying to say.

But generally speaking, vertical spreads are the simplest of the three. Horizontal and especially diagonal spreads are much more complex due to the different expiration dates of the different options. Therefore, I wouldn’t necessarily recommend trading (horizontal or) diagonal spreads if you aren’t completely familiar with them.

In the introduction, I mentioned that if you fully understand options spreads, you will understand all options strategies. But why do I think this?

The reason why I am saying this is that options spreads are the building blocks of almost all other options strategies. If you combine multiple options spreads, you can create almost any strategy. So instead of trying to understand how these dozens of different strategies work, it is much more efficient to learn how the building blocks of these strategies work.

Let me give you a few examples:

You probably realized that vertical spreads are relatively simple (compared to other options strategies). They are a two-leg strategy that consists of a long call and short call or a long put and short put.

But what happens if we combine multiple vertical spreads?

A new strategy is born! There are four different vertical spreads that can be combined to create a new strategy. I will now give you some concrete examples of what happens when you combine multiple vertical spreads.

Iron Condor

You may or may not know the option strategy iron condors. It is a very good and popular four-leg options strategy. Due to its four legs, it is usually labeled as an ‘advanced’ options strategy. But in reality, it isn’t anything else than a combination of two simple credit spreads.

I created the following image to explain this concept visually.

Hopefully, you can see how a combination of a bear call spread and a bull put spread create an iron condor.

Butterflies

Now let me give you another concrete example. Butterflies are another options strategy often referred to as complex and thus, only suitable for ‘advanced’ traders. But just like with iron condors, butterflies aren’t very complicated either. They are simply a combination of a bear call spread and a bull call spread.

Hopefully, these two examples make it clear how options spreads are the building blocks of most options strategies. These were just two of many examples where this is the case.

So in conclusion, options spreads can be thought of as Lego bricks. Just like Legos, options spreads can be combined in many different ways to create whatever your heart desires.

If you want to learn more about options strategies and when to use which strategies, you might want to check out my free strategy selection handbook.

My goal with this article was to introduce you to options spreads and thereby build a stable foundation for options trading strategies. It would be awesome of you to let me know if I achieved this goal in the comment section below!

Furthermore, if you have any questions, feedback or other comments, please tell me in the comment section.

10 Replies to “Options Spreads Explained – A Complete Guide”

Your explanation of the Option Spreads as building blocks to other strategies makes sense, but I am confused by the Iron Condor and Butterfly.

Does the Iron Condor and Butterfly make you money if the underlying asset price does not go over a certain amount or go over and then come back down before expiration?

That’s kind of what it looks like from looking at the graphs you included.

Thanks for your question. Iron condors and butterflies profit if the underlying asset’s price stays in a certain range. The size of this range depends on the strikes selected and the premium received/paid. I hope this helps with clarifying the confusion.

Otherwise, you could check out my article on Iron Condors and Butterflies.

Reading through this very comprehensive article on Option Spreads in Trading was so interesting. For someone new to this world of Trading it would need to be gone through a few times to fully understand all the terminology and nuances of trading. It is really complex for an ordinary person not versed in doing anything like this previously.

To my mind, if you are ready to Trade, you would need to be aware of the risks involved and not be afraid of losses. Only Trade with the amount you can afford, would be my way of thinking. Perhaps am too conservative.

It was very interesting to learn something new. Will take a look at it again at a later stage.

Thanks for the comment Jill. It is completely normal for people new to the world of trading to have trouble understanding everything. That’s actually also why I created a free trading terminology handbook in which you can look up all the seemingly complicated trading terms. So judging from your comment, you could definitely use my free trading glossary.

And no you are not too conservative! You should never risk more than you can afford to lose.

Hi Louis, I have completed your education classes and they are good, and I have learnt a lot. Best of all, I have learnt more from your free education than all the other programs I have paid for. Be leave me I have spent a lot of money on paid sites and it is not worth it. Selling short term options is my goal. However, I am have trouble comprehending receiving a credit when I sell an option. When I sell an option for a credit, I only receive the credit if it expires worthless Right. Thanks for your help

Hi Tom,
Thanks for the question. I hope I can clarify your confusion. When you sell an option to open a position, you receive a credit. So now you have a negative position open. To close this position, you could either buy back the sold option or wait until expiration. If you buy it back, you will give up some of the received credit. The amount of credit that you give back depends on the option’s price. If it has gone up, you might even have to pay more to close the position than you received when opening it.
If at expiration, the underlying’s price is at the right point, the option might expire worthless and only then, you could keep the entire credit that you collected when putting on the position.

Let me give you a concrete example:
You sell a call option with a strike price of $105 on XYZ which is trading at $100. You receive a credit of $1,50 (so $150). But now you have an open position which has to be closed for you to lock in the profit. As long as the position is open, the profits (or losses) are purely paper profits (or losses). They are only realized if you close the position which you can do by buying back the call option or by waiting until the expiration date.
Let’s say, you buy back the call option for $0,7 two weeks later. This would mean that you have a realized profit of $1,5 – $0,7 = $0,8 (or $80). So you can keep $80 of the collected credit.
If you instead wait until expiration and XYZ’s price is still below $105, you can keep the entire $150 of credit.

I really hope this helps. If you have any other follow-up questions, let me know.

Hi Louis,
In your reply to Tom looks like you did not mention that at expirations time if the stock price is above the strike price in a short call or below the strike price in short put, he would be forced to buy the stock at the strike price.

Thanks for the comment. Usually, when a trade such as a short call or short put is ITM shortly before expiration, I recommend closing the position for a loss. If you do this, you won’t have to buy or sell any shares at the strike price. I never recommend holding a losing short option position into expiration (unless you want to buy or sell stock at the strike price).
But you are right that if you would hold such a position into expiration, you would have to buy/sell stock at the strike price.

since a call spread would probably be assigned if the stock price goes above the strike price, it seems to me that it would be better to use a put spread when one expects the stock to go up and a call spread when one expects it to go down. Opposite of single options.

Hi and thanks for your comment,
I wouldn’t use assignment risk as a main factor when choosing which strategy to go for. Instead, I recommend looking at different market variables such as implied volatility, time till expiration, underlying asset, and price. Depending on the situation and your market assumption, a bull put spread can be better than a bull call spread and vice versa. The same goes for bear spreads. It depends on the situation.

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Short Call Spread

AKA Bear Call Spread, Vertical Spread

The Strategy

A short call spread obligates you to sell the stock at strike price A if the option is assigned but gives you the right to buy stock at strike price B.

A short call spread is an alternative to the short call. In addition to selling a call with strike A, you’re buying the cheaper call with strike B to limit your risk if the stock goes up. But there’s a tradeoff — buying the call also reduces the net credit received when running the strategy.

Options Guy’s Tips

One advantage of this strategy is that you want both options to expire worthless. If that happens, you won’t have to pay any commissions to get out of your position.

You may wish to consider ensuring that strike A is around one standard deviation out-of-the-money at initiation. That will increase your probability of success. However, the further out-of-the-money the strike price is, the lower the net credit received will be from this strategy.

As a general rule of thumb, you may wish to consider running this strategy approximately 30-45 days from expiration to take advantage of accelerating time decay as expiration approaches. Of course, this depends on the underlying stock and market conditions such as implied volatility.

The Setup

  • Sell a call, strike price A
  • Buy a call, strike price B
  • Generally, the stock will be below strike A

NOTE: Both options have the same expiration month.

Who Should Run It

Seasoned Veterans and higher

When to Run It

You’re bearish. You may also be expecting neutral activity if strike A is out-of-the-money.

Break-even at Expiration

Strike A plus the net credit received when opening the position.

The Sweet Spot

You want the stock price to be at or below strike A at expiration, so both options expire worthless.

Maximum Potential Profit

Potential profit is limited to the net credit received when opening the position.

Maximum Potential Loss

Risk is limited to the difference between strike A and strike B, minus the net credit received.

Ally Invest Margin Requirement

Margin requirement is the difference between the strike prices.

NOTE: The net credit received when establishing the short call spread may be applied to the initial margin requirement.

Keep in mind this requirement is on a per-unit basis. So don’t forget to multiply by the total number of units when you’re doing the math.

As Time Goes By

For this strategy, the net effect of time decay is somewhat positive. It will erode the value of the option you sold (good) but it will also erode the value of the option you bought (bad).

Implied Volatility

After the strategy is established, the effect of implied volatility depends on where the stock is relative to your strike prices.

If your forecast was correct and the stock price is approaching or below strike A, you want implied volatility to decrease. That’s because it will decrease the value of both options, and ideally you want them to expire worthless.

If your forecast was incorrect and the stock price is approaching or above strike B, you want implied volatility to increase for two reasons. First, it will increase the value of the near-the-money option you bought faster than the in-the-money option you sold, thereby decreasing the overall value of the spread. Second, it reflects an increased probability of a price swing (which will hopefully be to the downside).

Check your strategy with Ally Invest tools

  • Use the Profit + Loss Calculator to establish break-even points and evaluate how your strategy might change as expiration approaches, depending on the Greeks.
  • Use the Technical Analysis Tool to look for bearish indicators.
  • Use the Probability Calculator to verify that strike A is about one standard deviation out-of-the-money.

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Bear Call Spreads Screener

Stocks: 15 20 minute delay (Cboe BZX is real-time), ET. Volume reflects consolidated markets. Futures and Forex: 10 or 15 minute delay, CT.

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About Bear Calls

The best bear call strategy is one where you think the price of the underlying stock will go down.

Using a bear call strategy, you sell call options, and buy the same number of call options at a higher strike price as protection. The calls are for the same underlying stock, expiring in the same month.

  1. You sell 1 call
  2. You buy 1 higher strike call

Bear Call, Bull Call, Bear Put and Bull Put Strategies: These pages are initially sorted by descending “Break Even Probability.”

Options information is delayed a minimum of 15 minutes, and is updated at least once every 15-minutes through-out the day. The screener displays probability calculations based on the delayed stock price at the time the strategy is updated.

Main features of the Screener include:

  • Ability to add various filters, with hundreds of different combinations.
  • Save a Screener: When you’ve defined filters that you want to use again, save the screener.
  • Load a Saved Screener: Select a previously saved set of Screener filters to view today’s results.
  • View the Results using Flipcharts: Page through charts of the symbols on the results page.
  • Download the Results: Download up to 1000 results to a .csv file. The Download will also pull all of the data fields present on the View you use. Barchart Premier Members may download up to 100 .csv files per day.
  • Send an End-of-Day Email of a Screener’s Results: Barchart Premier Members can save a screener, and opt to receive 10, 25, or 50 results via email along with an optional .csv file of the top 1000 results. Emails are sent at 4:45pm CT Monday thru Friday.
Filters

Barchart Premier subscribers can add or modify different filters on the screener to find calls on the most favorable stock options.

Reordering Filters

Once filters are added, you may drag and drop them in the SET FILTERS tab to reorder the way they appear on the RESULTS tab (when using the Filters View). Each filter you add has the “Order” icon which is used to reposition it.

So you can focus on the best options, the screener starts by removing certain options:

  • Days to Expiration (monthly expirations only) is 60 days or less.
  • Security Type is only Stocks.
  • The Options Volume for both legs must be greater than or equal to 500.
  • Open Interest for both legs must be greater than or equal to 100.
  • Moneyness for Leg 1 is between -25% to 5% (OTM and ATM)
  • Break-Even Probability is greater than 25%.
  • The Leg 2 Ask Price must be greater than 0.05
  • The stock price must be greater or equal to 1.00.
  • The option must not be an “adjusted” option (the option cannot be based on a split stock).

Note: “Restricted options” (options quotes marked with an asterisk * after the strike price, and found on an individual symbol’s options page) are automatically removed from the screener. A “restricted option” is typically created after spin-offs or mergers, and are not tradeable.

Views

The Results page contains three standard views. You may switch the view using the links at the top of the screener results table. The Main View shows the Volume and Open Interest for each option, while the Dividend & Earnings View can be used to highlight strategies with upcoming dividends and earnings. The Filter view shows you the data contained in the field(s) you’ve added to the screener.

Probability Calculation

We take the underlying stock price, the break even point (target price), the days to expiration, and the 52-week historical volatility, and then use those figures in this formula. Depending on the strategy, we use the above or below probability (i.e., the probability the price crosses the break even point).

Pabove = N(d)
Pbelow = 1 – N(d)
where
N(d)= x if d > 0
= (1-x) if d and
d = 1n(b/l) / v√t,
y = 1/(1 + 0.2316419|d|),
z = 0.3989423e – (d*d)/2,
x = 1 – z(1.330274y⁵ – 1.821256y⁴ + 1.781478y³ – 0.356538y² + 0.3193815y)
and
b = break even point
l = last price
v = 52-week historical volatility
t = days to expiration
e = 2.71828

Main View

  • Stock Symbol – the underlying equity. Clicking on the symbol will take you to the current quote page.
  • Last – the delayed stock price at the time the strategy is updated for the underlying equity.
  • Max Profit – the potential return of this strategy. Max Profit is: Leg 1 Bid (OTM Call) – Leg 2 Ask (ITM Call) [Net Premium Received]
  • Max Profit% – the maximum profit, expressed as a percent. Maximum profit is achieved when the price of the underlying stock is less than or equal to the strike price of the short call
  • Max Loss – the maximum loss that the strategy might return, which is (strike price of the long call – strike price of the short call) – net premium received. Max loss occurs when the price of the underlying stock is greater than or equal to the strike price of the long call.
  • Break Even – the price of the underlying stock at which break-even is achieved: (short call strike price + the premium received from the sale of the short call)
  • Probability – the probability the last price will be at or beyond the break even point at expiration.
  • Exp Date – the expiration date of the option

    Depending on the strategy, you will be looking to buy (long) one option, and sell (short) another. The next four columns identify the strike price and bid/ask for each long and short option:

  • Leg 1 (Buy) Strike – the price at which the underlying security can be bought if the option is exercised
  • Leg 1 Ask – the premium to purchase this option
  • Leg 2 (Sell) Strike – the price at which the underlying security can be bought if the option is exercised
  • Leg 2 Bid – the premium to sell this option
  • Dividend & Earnings View

    • Dividend – the dividend the equity pays on the Ex-Dividend Date. On the morning of the Dividend Ex-Date, the stock’s price is lowered by the amount of the dividend that was just paid.
    • Dividend Ex-Date – the first day on which the stock trades without the dividend. If you wish to receive the dividend, you must own the stock by the close of market on the day before the Dividend Ex-Date. Many times, a covered call is exercised early so the buyer can own the stock and collect the dividend. This typically happens to ITM options the day before the Dividend Ex-Date.
    • Earnings Date – The date on which a company is expected to release their next earnings report. The prices are more volatile, which tends to inflate the prices of the near-the-money strikes. During a contract period when there is an earnings report due, the earnings announcement can dramatically shift the range in which the stock has been trading.
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