Vertical spread — capped risk directional trade

SPY at $500:

• BUY SPY 500 Call for $4.00
• SELL SPY 510 Call for $1.50
• Net debit paid: $4.00 − $1.50 = $2.50 per share = $250 per contract

| SPY at expiry | Long 500C value | Short 510C value | Net at expiry | P&L | |---|---|---|---|---| | $495 | $0 | $0 | $0 | −$250 (full loss) | | $500 | $0 | $0 | $0 | −$250 | | $505 | $5 | $0 | +$5 | +$250 | | $510 | $10 | $0 | +$10 | +$750 (max) | | $515 | $15 | −$5 | +$10 | +$750 (capped) | | $530 | $30 | −$20 | +$10 | +$750 (capped) |

• Max loss = net debit (what you paid)
• Max gain = spread width − net debit ($10 − $2.50 = $7.50 × 100 = $750)
• You give up unlimited upside in exchange for lower cost and higher probability of profit

Compared to a long naked call:

• Long 500C alone: costs $400, unlimited upside if SPY moons
• 500/510 spread: costs $250, caps upside at $750

If you think SPY moves 2% but not 5%, the spread is CHEAPER + more PROBABLE than the naked call.

Compute the P&L at three different expiry prices.