Covered call alternatives; part V.
I had intended the series that I named 'Covered Call Alternatives' to end with four posts, but received two excellent questions and am reproducing those comments and replies to share with all readers.
I'm looking for a good name for these 1 x 3 x 3 spreads, first described here. Suggestions welcome.
Thanks for the excellent series! There is just one thing I don't understand.
In my own paper plotting, using the example where you write 3 SPY 106/109 call
spreads, it's pretty clear that profit decreases as you move through the 106 to
109 range at expiration. This makes intuitive sense, since in that range, you're
losing 3 for every 1 you gain.
If you instead write 1 call spread, that should result in the profit curve
being flat as you move through spread at expiration. Profit is the same at 106
as it is at 109 and every point in between. It picks up again after clearing the
So my question is why do your P/L charts show a monotonically increasing
profit? I would expect the example using 1 call spread to show the profit curve
go flat between the strikes of the spread, and anything with more than 1 call
spread should show a decline as we move from lower to upper strike.
Thanks for clarifying,