Does the stock need to go up 40%?
Quick answerNo. The +40% is on the spread you paid for, not the stock. Often the stock only needs to rise a few percent, because an on-sale spread is cheap for what it can be worth.
The details
- It is a call debit spread, not a single call: you buy one call and sell a higher one. The sold call pays for part of it, and the gain stops at the higher strike.
- It is bullish: the ticker needs to go up some. The breakeven on the ticket is where it must be at expiry to get your money back.
- The cheaper the spread for each 1 dollar of width, the smaller the move it needs. That is why the 43¢ Rule matters.
The Quick-Start Guide's chapters 1 and 6 show the math with an example.
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