Question:
How do you calculate the % Assigned return for Equity & Index LEAPs spreads?
Solution:
The return calculations for the Equity & Index LEAPs spreads are:
% Assigned = Max. Profit ÷ Net Investment
% Assigned = (Long Call Value - Net Debit) ÷ Net Debit
Example: Stock XYZ at $49.31 per share.
Buy JAN 1 Year Out 40.00 strike call for $13.70
Write (Sell) the Near Month 55.00 strike call for $0.80
% Assigned = (Long Call Value - Net Debit) ÷ Net Debit
% Assigned = (17.90 - 12.90) ÷ (13.70 - 0.80) = 5.00 ÷ 12.90 = 38.8%
Max. Profit = Long Call Value - Net Debit = 17.90 - 12.90 = $5.00, if stock is at $55.00 Long Call Value = The calculated Black Scholes value of the long call when the stock price is at the higher strike.
|
