224  •   The Intelligent Option Investor
For instance, here are data from ATM and OTM call options on IBM 
(IBM) expiring in 80 days. I took these data when IBM’s shares were trad-
ing at $196.80 per share.
Sell a Call at 195
Cover at ($) Net Premium Received ($) Percent Return Capital at Risk ($)
200 2.40 48 5
205 4.26 43 10
210 5.47 36 15
215 6.17 31 20
220 6.51 26 25
225 6.70 22 30
230 6.91 20 35
235 6.90 17 40
240 6.96 15 45
In this table, net premium received was calculated by selling at the $195 
strike’s bid price and buying at each of the listed strike price’s ask prices. Percent 
return is the proportion of net premium received as a percentage of the capital 
at risk—the width of the spread. This table clearly shows that accepting expo-
sure with a call spread is a levered strategy. The potential return on a percent-
age basis can be raised simply by lowering the amount of capital at risk.
However, although accepting exposure with a call spread is un-
deniably levered from this perspective, there is one large difference: un-
like the leverage discussed earlier in this book for a purchase of call op-
tions—in which your returns were potentially unlimited—the short-call 
spread investor receives premium up front that represents the maximum 
return possible on the investment. As such, in the sense of the investor’s 
potential gains being limited, the short-call spread position appears to be 
an unlevered investment.
Considering the dual nature of a short-call spread, it is most help-
ful to think about managing these positions using a two-step process with 
both tactical and strategic aspects. We will investigate the tactical aspect 
of leverage in the remainder of this section and the strategic aspect in the 
portfolio management section.