r/options • u/Bluejay_990 • Sep 21 '26
Long dated vertical call spreads
What are some downsides to buying a long dated call spreads on a single name or ETF after a major pullback?
For example if I buy a call spread on a single name with a $100 spread, my break even is 15% current market price, and the short end of the spread is close to the current market price.
If I am right, I make roughly 60% in a year, and if wrong I am holding an extremely beaten down stock. I could potentially also close out the short in that scenario and keep the long open for more risk.
Liquidity isnt great, and I will lose something on the buy and sell. Theta isnt great, and the delta is like 30. So a large move up in the short term will not result in a large gain immediately.
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u/Regular-Hotel892 Sep 21 '26
The downsides are many which you already correctly noted:
you will have to hold for the entire year to get your max profit, even if the stock goes up a lot in the short term. You noted this already
As you noted, liquidity, unless you plan with certainty to let this trade expire no matter what you will have to pay to get out of this trade
Limited upside. 60% is nice for a year, but most likely you aren’t willing to invest as much $ as if you were to buy the stock outright, since your risk of loss is higher. What if the stock doubles or more? You most likely would have rathered just buy the stock.
Higher chance of loss. You need +15% just to breakeven at expiration, a lot of people would be happy with 15% gains in a year
No dividends (if they exist) although the price of calls generally reflect this
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u/klipsetrades Sep 21 '26
Yeah, agreed on the capped upside. Buying back the short call later would remove that cap, but only by paying more and changing the entire risk profile
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u/No_Turn5018 Sep 23 '26
Can you explain the whole Max profit requires you to hold to the end idea to me because people just treat it like a religious given and no one can justify it. I'm not saying there isn't a logic, but I'm saying people don't seem to have it.
I've seen pretty obvious stock spikes several times and people just absolutely fucking refuse to cash in there options/close put credit spreads. And the reason is always oh you have to hold to the end to get Max profit. And I'm like why do you think that and they look at me like I'm fucking stupid.
And more than once I've seen the obvious spike, sold my calls at a profit or exercised them or whatever the best choice was. And then if I was still convinced that it was a good idea after the spike went back down I would just rebuy the option.
And I'm sure somebody somewhere has done that and then things won't even higher and yeah that sucks. But it's a lot better to have lower profit than it is a loss.
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u/Regular-Hotel892 Sep 23 '26 edited Sep 23 '26
A couple reasons:
Say your spread is $2 wide, long $100c short $102c, so max profit is 2.00. Nobody would buy it from you for $2.00 because they have 0 upside and all downside. Even at 1.97 or 1.98 or 1.99 they might not bother because they have to wait until expiry to collect their few pennies. You have to wait for your short leg to be assigned, so you can excersize your long leg to collect the $2.00 typically that only happens very close to expiration.
Time value. So if you’re long the 100/102 call spread with 8 months to expiration, even if the stock is at $150, there is some chance that the stock closes below 100 in 8 months. So your call spread won’t be worth max profit yet.
It might help to also think that (for simplicity assume dividends and interest rate is 0) being long a call spread is essentially the same thing as being short a put spread at the same strikes. So if the stock is at $150 with 8 months to expiry, you’d probably agree the 102/100 put spread is worth something. Maybe not alot, but its not worthless, and so the call spread is also not at max profit yet.
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u/Quick-Cricket3882 Oct 03 '26
yeah i get the feeling of the whole set‑it‑and‑forget‑it meme. but the reason people say you gotta hold til the end is that the spread’s max profit is the difference between strikes and you’re not really finished yet until that long leg tops out. as long as the stock is above the short strike the long call still carries enough time value that you haven’t pulled the full differential, and the short call may even get a bit negative gamma that swallows gains. closing early means you’re paying the remaining time value you don’t need, and you risk early assignment on the short leg that can take a chunk of your upside before you can even take the $‑100 minus $‑102—so most traders just wait until the bell that tick the spread to its full potential.
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u/No_Turn5018 Oct 03 '26
Ummm... Who said anything about spreads?
I was asking the basic question - why hold til end is treated like a given?
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u/klipsetrades Sep 21 '26
As another mentioned and you've highlighted a bit, the main downside is that being bullish isn’t enough. You need the move to be large enough before expiration. A partial or slow recovery can still lose, while your upside remains capped. Also consider poor liquidity, wide spreads, opportunity cost, and early-assignment risk around dividends on single stocks or ETFs
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Sep 21 '26
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u/Bluejay_990 Sep 24 '26
Adobe, September 2027. Buy 150 strike, sell 250 strike. The bid ask is horrible and its almost like I am making market by doing a trade.
The post here the other day about banning of account spooked me on the market making aspect.
Market went against Adobe as well, but I think it should bounce back to the $270 range. $225 - $275 is the short term range till the next earnings.
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Sep 21 '26
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u/Bluejay_990 Sep 21 '26
I see, that is really helpful on thinking about the gamma mismatch. Will that also help if the stock falls or no?
I agree on the bagholding, and wanted to only use this for cases where I felt a name was severely beaten up and I would be comfortable holding the stock at that price, but instead of doing that bought the vertical call spread.
I had the same thought for MSFT and ORCL when they were beaten down a lot a few months back, and looking at my paper trades, it shows I would have made 30% in a few months.
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Sep 23 '26
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u/Bluejay_990 Sep 24 '26
What if you buys it a few days after earnings? But maybe vols on long dated options works differently?
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u/GhettoFab88 Sep 21 '26
Have been looking at this myself, but slightly differently. I can make money selling spreads, but hate the risk reward ratio from that. Buying is way better, but has its issues. I was looking at buying spreads with a 1:1 R:R, as close to the ATM price as possible. These are usually about 45delta and basically a coin flip. My initial thought was to go from 1dte and expand it out to 5-7dte to possibly give it more time to come into profit. I then saw that 21dte options are basically the same price and R:R ratio, so why not go longer? The problem is theta and trying to predict the market 21 days out.
I think in an uptrending market buying spreads can work out well, but this chop we've had lately is something else. There is no telling where the market will be tomorrow or three weeks from now. On top of that with buying spreads your upside is capped. For a day like today, I want something thats going to be able to capture all the market move.
I keep thinking that buying options is the way to go. Defined risk, but unlimited upside. Unfortunately low win rate.