Strategies · Library · Options
§2.6Trend
Bull call spread
Buy a call near the current price and sell a higher-strike call, same expiry. Costs less than a plain call, gains while the stock rises to the upper strike, then flattens.
- Asset class
- Options
- Held for
- To expiry
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Moderately bullish: expects the stock to rise but probably not far beyond the upper strike.
- Entry and exit
- Buy a call at or near the money; sell a call at a higher out-of-the-money strike; same expiry. Close at expiry or when most of the maximum gain is reached.
- Sizing
- 1:1 (one long lower-strike call, one short higher-strike call)
How it fails
- Maximum loss is the net debit paid, reached below the lower strike
- Gain is capped at the strike gap minus the debit
- Breakeven sits above the lower strike by the debit
- Short call can be assigned early; time decay helps near the top
Data it needs
- options chain with strikes and premiums
- implied volatility by strike and expiry
- underlying daily price
ARCANE has the underlying daily close but no options chains, strikes or implied volatilities
How ARCANE uses it
Matches a Call that a price rises to a stated target by a date but not far past it; the target is the short strike. Paper only.
Capped payoff needs options; owning the underlying overshoots the shape.
Filed under the trend card
Hold each market in the direction of its own return over the past year, and size every position to the same expected volatility.
A paper plan from this card holds 21 to 252 days, stops at 2× the expected move and uses at most 100% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.6, p. 20 of the SSRN version. Described in our words. Trend is ARCANE’s filing, not the book’s.