Total Options

Trade Analysis

Analysing your trade is essential before placing the trade. You need to max sure you have the necessary detail and go through the following checklist:

1. Stock Selection: Double check your analysis on the stock and make sure you share price target for the bull call spread is realistic.
2. Determine entry cost, most important as it is also your maximum loss.
3. Determine max profit and check that it is realistic.
4. Make sure you have a good risk vs. reward.

Risk vs. Reward

The risk vs. reward of a trade should be calculated before placing the trade. The risk vs. reward ratio is the amount you are risking relative to the potential profit. For instance if you are risking $100 to make $200 profit then the risk vs. reward is risking 1 to make 2 (risk vs. reward 1:2). A bull call spread should have a risk vs. reward of 1:1.5 or greater. You should aim for a risk reward around 1:2. This means that you need to have a 33% success rate to be a successful trader. It also helps with your risk management by allocating a risk level per trade and a maximum profit level to take profits.

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