Unlocking Your Financial Potential
Hello, Savvy Investors!
Welcome to this edition of the Alejos Capital Group Newsletter—where big financial strategies are simplified into ideas you can understand, apply, and profit from. Today, we’re spotlighting an exciting tool for your portfolio: Vertical Call Spreads.
Think of this as a smarter way to profit from stock price moves without tying up all your capital. Sound intriguing? Let’s unpack it with a real-world example and clear math.
What Are Vertical Call Spreads?
A vertical call spread is a two-step options strategy:
Buy a call option: You gain the right to buy a stock at a specific price (strike price) in the future.
Sell a call option: You sell another call at a higher strike price to offset some of your cost. This caps your potential profit but lowers your initial investment.
The result? A defined-risk strategy where you know your maximum loss and potential reward upfront. It’s financial control at its best.
Real-World Example: TSLL Vertical Call Spread
Let’s take a closer look at a real trade involving TSLL (Direxion Daily Tesla Bull 2X Shares), which magnifies Tesla’s price moves:
The Trade Setup
Buy TSLL $23.43 call (expires 01/16/2026) for $14.18.
Sell TSLL $29.43 call (expires 01/16/2026) for $13.50.
Net Cost: $0.68 per share (or $68 per contract, as each contract represents 100 shares).
The Time Horizon
This is a long-term trade, with a one-year expiration date (January 2026). The extended timeline allows the stock sufficient time to make the desired move.
Maximum Profit and Risk
Maximum Profit:
Difference between strike prices = $6.00.
Subtract cost of the spread = $6.00 - $0.68 = $5.32 per share.
For one contract (100 shares): $5.32 × 100 = $532.
Maximum Risk:
Your initial investment: $68 per contract.
Probability of Profit (POP)
Based on current market conditions, there’s about a 70% chance TSLL will finish between $23.43 and $29.43 within a year, making this a high-probability trade.
Return on Investment (ROI)
Fishing for Multiples;
ROI per contract: ($532 profit / $68 cost) × 100 = 782% or 7.82X Multiple
Scaling the Strategy
The beauty of vertical call spreads is their scalability. Here’s how the math works as you increase the number of contracts:
50 Contracts
Cost: $68 × 50 = $3,400.
Potential Profit: $532 × 50 = $26,600.
ROI: Still 782%, but the dollar impact is magnified.
100 Contracts
Cost: $68 × 100 = $6,800.
Potential Profit: $532 × 100 = $53,200.
ROI: 782%, scaled for bigger returns.
This approach lets you amplify your gains while keeping your risk fixed and manageable.
Why Vertical Call Spreads Work
Vertical call spreads offer several benefits that make them a standout strategy:
Low Risk, High Reward: Your maximum loss is limited to the cost of the spread.
Defined Time Horizon: With a one-year expiration, this strategy aligns with medium- to long-term goals.
High Probability of Success: Strong probabilities mean this trade is built for favorable outcomes.
Leverage Without Stress: Gain exposure to stock price movements without owning the stock or risking large sums.
How Alejos Capital Group Supports You
At Alejos Capital Group, we simplify sophisticated strategies and help you implement them with confidence. Here’s how we can assist:
Workshops and Tutorials: Learn the "how" and "why" behind strategies like vertical call spreads.
Tailored Advice: Align these strategies with your personal financial goals.
Continuous Support: Get insights, updates, and guidance as you grow your portfolio.
Ready to Elevate Your Investing?
Whether you’re new to options or ready to add more powerful tools to your portfolio, vertical call spreads are a great next step. With the right guidance and planning, you can maximize your potential and minimize unnecessary risks.
Let’s turn possibilities into realities.
Stay informed. Stay empowered. Stay winning.
— The Alejos Capital Group Team
