While both legs are open, wont you see the position as a whole decline as the stock declines because of the long leg? Sure, you collect a credit up front from the sale of the short leg, and I suppose it depends on the broker and how they display the overall position.

However, the short leg would cost less to buy back. I'm not new to options, just new to spreads. I guess Im going to have to track a few on paper to see how this works.

1 Answer 1


From the example in your link:

  • Short 1 XYZ 60 call
  • Long 1 XYZ 65 call

Ignoring implied volatility, the value of the position changes for two reasons:

  • Change in the underlying's price

  • Time decay

Both legs of the spread are gaining or losing, simultaneously. Because the 60 call has a higher delta and a a higher premium, as XYZ drops, the 60 call will lose more value than the 65 call loses, resulting in a position gain. Conversely, if XYZ rises you will incur a loss because the 60 call will gain more value than the 65 call does (net position loss).

If you can find an option charting program that presents time slices depicting the spread's value at varying points prior to expiration, the graph might be self explanatory. Plan B would be to pick a date before expiration, say today, and list the option premium for each leg over a range of 58 to 67 for XYZ. Then, you'd see the relationship of the individual numbers.

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