Free course · Options · Intermediate
After the Covered Call: Option Spreads, Step by Step
A free course on option spreads for traders who already know single calls and puts. It works each structure through a hypothetical stock near $100, then shows how to run the trade once it is on.
Who it is for
Traders who understand single calls and puts, hold spread approval on their account, and want defined-risk trades they can size in advance.
By the end you can
- Pick the width and strikes of a vertical spread from the dollar risk you can accept
- Find a vertical's best case, worst case and break-even price before you place it
- Explain what a calendar spread earns from and where the stock needs to be for it to pay
- Compare an iron condor with a butterfly on the same stock and choose the one that fits your view
- Decide where you will take profits, cut losses and close on time before opening a spread
The lessons
- 01 Vertical Spreads: Choosing the Width and the Strikes
Vertical spread width sets the most a trade can make and lose, and the strikes set the odds. Worked bull call spreads at 100/105 and 100/110, debit and credit.
About 13 minutes, with a quiz at the end
- 02 Time Spreads in Options: Calendars and Diagonals in Practice
Time spreads in options sell near-term time and own longer-term time. A worked $100 calendar for a $1.50 debit, where it pays, where it loses, and diagonals.
About 13 minutes, with a quiz at the end
- 03 Iron Condor vs Butterfly: Two Ways to Sell a Quiet Market
Iron condor vs butterfly on the same $100 stock: a condor for a $1.60 credit against a butterfly for $1.00, with maximum loss, break-evens and range compared.
About 14 minutes, with a quiz at the end
- 04 Managing an Options Spread: Close, Roll or Leave It
Managing options spreads starts before entry: a profit target, a loss limit, a time exit. A credit spread closed at half its credit, and how to judge a roll.
About 13 minutes, with a quiz at the end
Open an option chain and put a finger on two strikes in the same expiration: one you would buy, one you would sell. That pair is a spread. The long option does the job you already know from single calls and puts, while the short one pays for part of it and puts a ceiling on what the trade can make, which turns an open-ended bet into a position whose worst case is printed on the order ticket before you send it. The rest is a matter of choosing strikes and dates.
Who the course suits
You have bought calls and puts. You may have written a covered call against shares you own, and you read a chain without stopping to decode the columns. Now you want a view with a known maximum loss.
You also need permission. Brokers grant options access in tiers, and the tier for spreads is above the one for covered calls, so check the permissions screen on your account before you plan a trade the platform will reject. Still shaky on puts? Start at the options hub.
What to have ready
A chain from your own platform. Bid, ask and open interest should be showing. Bring a calculator or a spreadsheet as well.
The examples use a hypothetical stock trading near $100 with round option prices, so each sum stays readable. After each worked example, repeat the arithmetic on a stock you follow, using the live bid and ask, because the gap between the midpoint and the price you can fill at is where most of the difference between a textbook spread and a real one shows up.
How to work through it
Go in order. Each lesson leans on the payoff arithmetic from the one before, and the condor and butterfly material assumes you can find the maximum loss of a vertical in your head.
Every lesson ends with a short quiz. Take it before moving on. A wrong answer usually traces back to a single line of working you skimmed, and finding that line is quicker than rereading the whole lesson.
Draw the payoff at expiration for every trade, by hand if you like. It takes a minute and catches most errors.
What it leaves out
Naked selling is out. So are trades that exist mainly to bet on volatility itself, such as skew trades and ratio structures, where one leg is left uncovered and the worst case stops being a number you can write down at entry; a ratio spread hides a naked option explains how that happens. Every structure in the course is capped on both sides from the first minute.
Tax treatment of spreads is left alone too. Situations differ.
Where to go after
The spread most traders place first is a credit spread, and choosing strikes for a credit spread takes that decision further, with the delta and the credit weighed against each other. For the trade that pays best when a stock pins one price, read the case for the butterfly. The diagonal spread entry covers the time spread with two different strikes, which the calendar lesson only touches.
People also ask
Do I need a special approval level to trade option spreads?
Usually, yes. Brokers set their own options approval tiers, and spreads sit on a higher tier than covered calls or buying single options. Look at the options agreement or the permissions screen on your account to see which structures you can place before you plan one.
Are option spreads safer than buying calls or puts?
A spread caps the worst case at a figure you can see before you enter, which makes sizing easier. It also caps the best case, and a spread with a small debit can still lose all of that debit. Defined risk means known risk, and the size of the position still decides how much it hurts.