Understanding Bull Call Spread

[brendank12]

I would like to know how much money Bull Call Spreads will tie up in your account.

For example, say you have $10,000 in your trading account and you want to start a bull call spead on XYZ:

XYZ Jul 21 '12 $75 Call at $5.70 and Sell Open 1 XYZ Jul 21 '12 $80 Call at $3.00

How much would this tie up in total for your account? Would you have to own 100 shares of XYZ to write the covered call and thus fronting $8000 for the $3 premium covered call?

Thanks in advance.

 

[QuestOptions]

Well, your risk for this trade should be limited to the cost of the trade.

In your example, it would be $2.70 x 100 = $270 (plus what ever your fees and commissions are).

Now, I'm not sure if this varies in different countries...But most (if not all) US brokers will not make you put more down than the $270 (plus fees).

In the trade... you are risking $2.70 to make a max of $2.30.

Of course, you should check with your broker...but no, it shouldn't tie up any funds except your cost.