226  •   The Intelligent Option Investor
of losing the entire margin amount is higher, but the margin amount lost 
is smaller. On the other hand, if we attempt to maximize our winnings 
and initiate the widest spread possible, our total exposure is greatest, even 
though the chance of losing all of it is lower.
Plotting these three variables on a graph, here is what we get:
200 (11%)
0%
20%
40%
60%
80%
106% 102%
94%89%
100%
120%
140%
160%
180%
200%
205 (22%) 210 (33%) 215 (44%) 220 (56%) 225 (67%) 230 (78%) 235 (89%) 240 (100%)
Strike (% of Total Exposure)
Risk & Return of Call Spreads vs. Maximum Spread
Risk Comparison Return Comparison
Here, on the horizontal axis, we have the value of the covering strike and 
the size of the corresponding spread as a percentage of the widest spread. 
This shows how much proportional capital is at risk (e.g., at the $215-strike, 
we are risking a total of $20 of margin; $20 is 44 percent of total exposure 
of $45 if we covered at the $240-strike level). The top line shows how much 
greater the loss would be if we used that strike to cover rather than the 
maximum strike and the option expired at that strike price (e.g., if we cover 
at the $215-strike and the option expires when the stock is trading at $215, 
our loss would be 6 percent greater than the loss we would suffer if we 
covered at the $240-strike). The bottom line shows the premium we will 
realize as income if the stock price declines as a percentage of the total pre-
mium possible if we covered at the maximum strike price. Here are the val-
ues from the graph in tabular format so that you can see the numbers used: