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Here’s something that completely changed how I think about options trading back in the day— and it might revolutionize your approach too. I was recently asked which strategy produces better profits: basic calls and puts or spreads.
The answer isn’t what most traders expect…
You’re gonna get more percentage gain from a spread while you’re gonna get more net money from the options. But here’s the key distinction — if you’re looking for a huge move, the call by itself would be better. If you’re looking for a little move, which is what we usually target, the debit spread is 10 times better.
Let me show you exactly what I mean with real numbers that’ll blow your mind.
The Percentage Return Mathematics
Say you buy a call option for $2.50, so $250 for one contract. And say the underlying stock moves fifty cents — well, you just made about a 4% return on investment on your call option.
Now watch what happens with the same trade structured as a spread. The stock makes the same fifty-cent move and your position goes up a dollar. That’s a 20% to 30% return.
The underlying moved exactly the same amount in both scenarios but your percentage return differs by several multiples simply because of how you structured the trade.
How to Put on a Simple Vertical Spread
So now let’s dive into executing a simple debit spread, and let me tell you, this is going to be a game-changer for your trading strategy. Here’s the deal: A debit spread is a strategy where you buy and sell options of the same class and expiration but with different strike prices.
It’s a fantastic way to limit your risk while still giving you the potential for profit. It’s like having your cake and eating it too!
So, let’s break it down step-by-step. First, you want to identify a stock that you believe is going to move in a certain direction. Let’s say you’re bullish on stock ticker ABC, and you expect it to go up.
You’ll start by buying a call option with a lower strike price. This is your long leg, and it’s where you’re going to make your money. Next, you’ll sell a call option with a higher strike price.
This is your short leg, and it helps offset the cost of the long leg. The difference between what you pay for the long leg and what you receive for the short leg is your net debit.
And remember, folks, the beauty of this strategy is that it caps your maximum loss to the net debit while still allowing for a nice profit if the stock moves as expected. Yes, the profit is capped, but you won’t pay nearly as much.
Just remember that you must execute this as one trade, not two separate trades.
So, get ready to take action and watch how this strategy can transform your trading game!
Why This Changes Everything for Small Accounts
This mathematical edge becomes absolutely transformational when you’re working with smaller trading accounts. Instead of putting all your capital into one or two expensive naked options, you can diversify across multiple positions with superior percentage returns. That diversification gives smaller accounts room to grow while reducing the strain of oversized single-position risk.
The beauty is that you’re not paying for unlimited upside potential that you’ll rarely capture anyway. When you’re targeting methodical, steady moves that produce consistent profits, the spread structure captures nearly all the directional benefit while requiring just a fraction of the capital.
And there’s another layer that strengthens this approach. We look for very strong institutional momentum to come in and specific qualities in my software can identify that in real time. When you combine that momentum with the capital efficiency of spreads, you create a powerful framework for stacking reliable, scalable trades.
It definitely spreads when you’re looking for those reliable, modest moves that build accounts systematically over time.
I hope that helps!
Roger Scott
Roger Scott Trading
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