Overview

Options spreads are advanced trading strategies that involve simultaneously buying and selling multiple options on the same underlying asset. This approach can be used to manage risk, reduce capital requirements, or execute a specific market view.

We now support the following multi-leg strategies:

• Two-leg spreads:
  • Vertical spreads (same expiration, different strike prices)
  • Calendar spreads (different expirations, same strike price)
  • Diagonal spreads (different expiration and different strike prices)
• Three- and four-leg spreads:
  • Butterfly and Iron Butterfly
  • Condor and Iron Condor

You can enter and exit all legs of a spread with a single transaction and view the position as one consolidated trade.

Eligibility requirements

To trade advanced options strategies like spreads, you must have a margin account.

You can't trade these spreads in registered accounts (like a TFSA or RRSP) or in a non-registered, non-margin account.

How to place a multi-leg spread trade

You can build a spread trade directly from the option chain on the Wealthsimple app or web. The platform will execute your strategy with a single, unified order, meaning you won't have to place separate buy and sell orders for each option. To do so, follow these steps:

Understanding spread types

Understanding the spread type helps you choose the right strategy based on your market outlook.

Vertical spreads (same expiration, different strike prices)

• Call debit spread (Bull Call Spread): A moderately bullish strategy. You buy a call at a lower strike and sell one at a higher strike.
  • Impact to margin available: You pay a net debit to open the position. This is your maximum loss, so no additional buying power is held as collateral.
• Put debit spread (Bear Put Spread): A moderately bearish strategy. You buy a put at a higher strike and sell one at a lower strike.
  • Impact to margin available: You pay a net debit to open the position. This is your maximum loss, so no additional buying power is held as collateral.
• Put credit spread (Bull Put Spread): A moderately bullish or neutral strategy. You sell a put at a higher strike and buy one at a lower strike.
  • Impact to margin available: You receive a net credit. Buying power is held as collateral to cover the maximum potential loss until the position is closed.
• Call credit spread (Bear Call Spread): A moderately bearish or neutral strategy. You sell a call at a lower strike and buy one at a higher strike.
  • Impact to margin available: You receive a net credit. Buying power is held as collateral to cover the maximum potential loss until the position is closed.

Calendar spreads (different expirations, same strike price)

Also called a time spread. This involves selling a short-term option and buying a longer-term option at the same strike price, typically for a neutral outlook.

• Impact to margin available: You pay a net debit to open the position. This is your maximum loss, so no additional buying power is held as collateral.

Diagonal spreads (different expiration and different strike prices)

This involves selling a short-term option and buying a longer-term option, both with different strike prices.

• Impact to margin available: This strategy can be opened for a net debit or credit. In either case, buying power is held as collateral to cover the risk of the position.

Three- and four-leg spreads

• Butterfly: A neutral strategy that can be structured for a low- or high-volatility outlook.
  • Impact to margin available: This strategy can be opened for a net debit or a net credit. When opened for a net debit, the debit is your maximum loss and no additional margin requirement is applied. When opened for a net credit, a margin requirement is applied to cover the maximum potential loss of the position, which will reduce your available buying power.
• Iron Butterfly: A neutral strategy similar to a butterfly, built using both calls and puts.
  • Impact to margin available: This strategy can be opened for a net credit or a net debit. When opened for a net credit, a margin requirement is applied to cover the maximum potential loss of the position, which will reduce your available buying power. When opened for a net debit, the debit is your maximum loss and no additional margin requirement is applied.
• Condor: A neutral strategy with a wider potential profit range than a butterfly.
  • Impact to margin available: This strategy can be opened for a net debit or a net credit. When opened for a net debit, the debit is your maximum loss and no additional margin requirement is applied. When opened for a net credit, a margin requirement is applied to cover the maximum potential loss of the position, which will reduce your available buying power.
• Iron Condor: A neutral strategy similar to a condor, built using both calls and puts.
  • Impact to margin available: This strategy can be opened for a net credit or a net debit. When opened for a net credit, a margin requirement is applied to cover the maximum potential loss of the position, which will reduce your available buying power. When opened for a net debit, the debit is your maximum loss and no additional margin requirement is applied.

Margin requirements for spreads

Whether you need margin for a spread depends on one thing: Did you pay to enter the trade, or did you collect money upfront?

If you paid upfront (a debit spread), no additional margin is required. The amount you paid is the most you can lose — so there's nothing more to set aside.

If you collected money upfront (a credit spread), you'll need additional margin. That's because your potential loss goes beyond the credit you received. To figure out how much margin you need, take the difference between the two strike prices (× 100), then subtract the credit you collected.

Example — debit spread

You buy a call at the $45 strike for $4.00 and sell a call at the $50 strike for $1.50. Your net cost is $2.50 per share ($250 per contract). That $250 is the most you can lose, and you've already paid it. No margin needed.

Example — credit spread

You sell a put at the $50 strike and buy a put at the $45 strike, collecting a net credit of $1.50 per share ($150 per contract).

• Spread width: $50 − $45 = $5.00 per share ($500 per contract)
• Net credit received: $150
• Margin required: $500 − $150 = $350

This $350 is also the most you can lose — it would happen if the stock falls below $45 at expiration.

A few things to keep in mind

• Your short option must expire on or before the long option for reduced spread margin treatment. If the long option expires first, the positions won't be recognized as a spread for margin purposes.
• Both options must be on the same underlying asset.
• Margin on credit spreads is held for the life of the trade and released when you close the position or it expires.
• Wealthsimple may require more margin than the regulatory minimum set by CIRO for certain trades.

How to close a spread

You can close a spread from the Wealthsimple app or web by following the steps below:

Frequently asked questions

Related articles

• Trade multi-leg options: Straddles, strangles, and rolling options
• Trade options in a margin account
• Understanding margin calls
• Enable options trading in your investing account
• Understand options terminology