# Hedging a portfolio using Bull Call Spreads

I'm having some difficulty understanding how one would hedge a portfolio using bull call spreads as outlined in the following paragraph (

Today is also a good day to revisit my suggestion for a long-term catastrophic hedge like the SQQQ 2020 $20 ($4)/30 ($3.50) bull call spread at 0.50, which pays a fantastic 20:1 if the Nasdaq falls apart. As I noted on the show, it's useless as a short-term hedge as the short calls will wipe out the gains on the long calls but, if the market tanks and stays down, you can turn$5,000 into $100,000 so we can COMPLETELY insure a$100,000 portfolio for $5,000. Since our$100,000 Options Opportunity Portfolio is already up 11% ($11,000) for the year, putting aside$2,500 a year for insurance is not that big a deal… (Source)

Someone gave me the following example to aid in understanding what the original author was suggesting:

Roughly calculations/estimates:

SQQQ at 17 today

Buy $20 calls for$4

Sell $30 calls for$ 3.5

Total cost for you is $0.5 Assume SQQQ falls to 10 Value of$20 calls will be 0

Close the $30 short calls to close position at$20.5

Net gain = 20.5 - 0.5 = $20 The part I am having difficulty understanding is: Close the$30 short calls to close position at $20.5 Net gain = 20.5 - 0.5 =$20

To close the short call position, you will BTC $30 calls. Why/how would you net roughly 20.5 when closing this position that you originally sold for$3.50?

So if the "Nasdaq falls apart" catastrophically, the SQQQ will skyrocket. If SQQQ is over $30 at expiration, the$20/$30 bull call spread will be worth$10 because the $20 call will have an intrinsic value of$10 and the $30 call will be worthless. If SQQQ is above$30, the two calls will offset each other as the $30 call loses$1 for every $1 the$20 call makes, keeping the spread worth $10 (11-1, 12-2, etc.). With$5k of seed money, you can buy 100 spreads at 50 cents each ($50 per spread). If the spread pays off at maximum value, you net$95k ($100k -$5k cost). That's 20 to 1.
Now, the problem with this idea... I don't know when this article was written or what the option prices were on that day but it's really hard to believe that these are anything more than fantasy quotes for the options utilized. At today's prices, it would cost $2.70 per spread at market prices. Even if you split the bids and got a better fill, that improved price is still a long way from 50 cents per spread. I would bet that if I modeled the position going back 3-4 months, the prices of the options would still make no sense, regardless of what SQQQ traded at because the implied volatility of the$30 option would have to be 3 to 4 times that of the \$20 call and that ain't gonna happen, ever.