I’ve been thinking about opening a wide bullish debit spread on SPY with a two month time to expiry.

I’m currently looking at the March 20th calls and am thinking of selling the $425 call while buying the $359 call. This will cost me $5 per contract and that’s fine because I have a small account and would rather not play with more than 3% of my portfolio at a time.

I made the decision to go with a wide spread, in case of the one in a million chance that SPY breaks $425 by March 20th (very highly doubt it, 99.99999% sure it won’t even come close). This is because I believe the maximum profit for a debit spread is the width of the spread, minus any debit paid, multiplied by 100. This means with a spread width of $66 and a debit paid of $5, my max profit is $6595 and is achieved if SPY is above $425 at expiry (correct me if I’m wrong here please).

However, my primary goal with the spread is to wait as SPY creeps towards $359 and take profits around the middle of March when the price is around $345 and the bid/ask spread has widened (if it moves as it has over the previous two years).

But this leaves me with a question; if I create the $359/$425 debit spread, can I sell my long leg (the $359 calls) for profit, and then decrease the width of the spread (to re-cover the short leg) to say the $420 calls?

What is the impact of doing something like that? What are potential gotchas that could occur?

NOTE: I’m not talking hundreds of contracts here either, between 1 and 5 max with my goal being to make between $20 and $100 profit.

  • 1
    potential gotchas == coronavirus
    – Ashish
    Mar 25, 2020 at 23:46

1 Answer 1


The SPY Mar 20 $425 call had a closing bid/ask Friday of $0.00 x $0.01. With a bid of zero, there's nothing to be gained from creating a vertical spread, nor can you do it if that's an accurate quote. And if the bid was one cent, it's insufficient reward for limiting the upside.

Whether it's the vertical you proposed or just long the $359 calls, you can roll the long call up to a higher strike, booking a gain yet remaining in the ball game. This might make sense if there was significant time remaining until expiration but it would make no sense to do so in the middle of March with expiration looming.

The impact of doing this is that you lower your long delta and you don't make as much compared to what you would have made on the lower call strike should the SPY continue upward. This is a useful technique for options that are closer to the price of the underlying but not in long shot bets like this.

Speaking of long shots, the delta of an option is a rough, albeit inaccurate estimate of the probability of the option being in-the-money at expiration. For this $359 call, it's about 1.20%. The probability of touch is about twice that (the probability that the option will touch the strike before expiration. This is definitely a lottery ticket :->)

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