Vertical Spread Trading Tips (ESSENTIAL CONCEPTS)
Рет қаралды 121,299
5 жыл бұрын✅ New to options trading? Master the essential options trading concepts with the FREE Options Trading for Beginners PDF and email course: geni.us/options-trading-pdf 💰 Get up to $3,000 when you open and fund your first tastytrade brokerage account: geni.us/tastytrade
🔥 Learn data-driven options strategies: optionsforbeginners.teachable...
====
The vertical spread options strategies are four of the most basic, yet most powerful options strategies that exist. Additionally, they serve as the building blocks for more complex strategies such as Iron Condors and Butterflies.
The four vertical spreads are the bull call spread, bear call spread, bull put spread, and bear put spread. The bull call spread and bear put spread are classified as "debit spreads," while the bear call spread and bull put spread are classified as "credit spreads."
In this video, I'll cover essential concepts you NEED to understand before trading vertical spreads:
- The relationship between extrinsic value and the profitability of any vertical spread.
- Why debit spreads are NOT low implied volatility trades. In other words, buying spreads in low implied volatility is not necessarily optimal, though it is commonly taught that way.
- The pros and cons of short-term and long-term expiration cycles when trading vertical spreads.
- What to consider when choosing strike prices for debit spreads and credit spreads, with a real demonstration and comparison using the tastytrade trading platform.
- Logic behind taking profits and losses when trading spreads, as well as trade management techniques that can be used with any trading strategy.
Be sure to leave a comment down below with any questions you may have!
=== VERTICAL SPREAD STRATEGY TUTORIALS ===
Vertical Spreads (Basics for Beginners): www.projectfinance.com/vertic...
Bull Call Spread Tutorial: • Bull Call Spread TUTOR...
Bear Call Spread Tutorial: • Bear Call Spread TUTOR...
Bull Put Spread Tutorial: • Bull Put Spread TUTORI...
Bear Put Spread Tutorial: • Bear Put Spread Option...
=== RECOMMENDED VIDEOS/RESOURCES ===
Options Trading For Beginners (PLAYLIST): • Become an Options Trad...
tastytrade Tutorials (PLAYLIST): • tastyworks Tutorials
Option Pricing EXPLAINED: • Option Prices EXPLAINE...
Options Trading 101: • Stock Options Trading ...
COURSES: www.projectoption.com/options... tastytrade, Inc. (“tastytrade”) has entered into a Marketing Agreement with Project Finance(Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade and/or any of its affiliated companies. Neither tastytrade nor any of its affiliated companies is responsible for the privacy practices of Marketing Agent or this website. tastytrade does not warrant the accuracy or content of the products or services offered by Marketing Agent or this website. Marketing Agent is independent and is not an affiliate of tastytrade.
@projectfinance 11 ай бұрын
✅ New to options trading? Master the essential options trading concepts with the FREE Options Trading for Beginners PDF and email course: geni.us/options-trading-pdf
@jhubcapable 3 жыл бұрын
You have such a clear and concise yet thorough manner of explaining a really complex topic. I have been frustrated many times over the last couple years while reading or watching some content and the author or presenter just blatantly leaves a couple sentences out that were key to my understanding haha. You have a natural calming vibe, thanks for all your help and I am sorry ahead of time if I annoy you asking questions in the future. I just stumbled upon projectoption and I am a big fan already no doubt
@yichalnegussie5401 3 жыл бұрын
I agree this channel is the best It is very underrated, I thank you for what you doing!!
@Agooo13431 Жыл бұрын
Chris: you are the absolute best in explaining options! I think one conclusion from your presentation is that debit put spreads (DPS) are not mirror images to debit call spreads (DCS). What I mean is that, if you are buying DPS with bearish assumption, the drop in price of the underlying usually comes with an increase in IV, limiting your gain. When buying DCS with bullish assumption and you are right, the decrease in IV, which usually happens when the underlying rises in value, will greatly increase your reward. So, when suspecting that a stock has bottomed and will rebound, 1-2 months DCS is a great idea, and you can sell it for profit long before expiration. What should you do on the other hand if you think a stock has peaked? DPS for same expiry doesn't seem to be a good idea.
@saketmulge9003 4 жыл бұрын
Dude your channel is the best and highly underrated. I hope you gain more subscribers. They don't know what they are missing.
@Edan591 3 жыл бұрын
this video really helped solidify my understanding of vertical spreads. I particularly enjoyed the comparison of the ITM, ATM, and OTM spread options.
@dustinmartin4621 4 жыл бұрын
I love your videos man. I have learned soo much information. I really appreciate it! I just recently got interested in reading and I’m glad I found your videos !
@epgamao 3 жыл бұрын
I like the way you discussed and explained the concepts as I am a beginner, and I appreciate you for that. Nice job, Chris, you seem have all the time to share your knowledge to your audience. Will finish the modules and will open tastyw...later. Forever grateful!
@dineshkukreja4964 4 жыл бұрын
Best Channel by far to learn options trading on KZfaq. Highly recommended to go through all videos for holistic understanding!
@projectfinance 4 жыл бұрын
Wow, thanks!
@sedul2006 4 жыл бұрын
Thank you for the detailed guidelines around Vertical Spreads. There are various ways to structure the spread to change the Reward vs. Risk Ratio based on your underlying outlook. For the Debit Spreads 1) My understanding is Profit Potential can be increased with widening debit spread, but the risk increase due to higher premium paid. And making the spread smaller, i.e. ($1 strike diff), the risk is lower due to smaller debit. It was also mentioned that as a rule of thumb, the short call would pay for 20% of the Debit required for the long call as a guideline to define the Strike Difference. What are your thoughts on structuring a debit spread by selecting say 2 OTM (25-40 Delta) Call Options such that the Premium Paid is low versus the Strike Difference? When would you use this versus. i.e. the Debit is 0.10 cents, and the Strike difference is $1, so your Reward to Risk is 10:1 but you'd only find these if they are rather OTM, so the POP could be much lower. Essentially this is more lottery ticket like and Binary outcome that you're looking for the underlying to go past the Long Strike price. 2) What are the considerations of selecting a Debit Spread that suits your target price and confidence % of the stock? Say, Stock is at $10, I think it will have a decent upside move to $15 in the next month with a 80% Confidence. Are there some website / tools / platform tools that help with determining the best Debit Spread based on that? 3) Long Option (Single Leg) vs Debit Spreads What are your thoughts of just using Long Options (25-40 Delta) in order to not cap the upside (Call Options), downside (Put Options) from the long run? If you have a good idea that the underlying would explode. When would you choose one over the other?
@HefTrade 4 жыл бұрын
thanks chris! liked and subscribed! learning a lot here.
@novaboss23 4 жыл бұрын
Thanks didn’t expect and reply but I’ll check them out!
@projectfinance 4 жыл бұрын
I reply almost all of the time, so feel free to leave a comment on a video with questions if you have any!
@RajatSharma-jk1qj 2 жыл бұрын
Each and everything very nicely explained, thanks a ton man 😊
@khushboo2300 2 жыл бұрын
sir pls do not stop :) pls keep putting videos especially live option trades what all to consider before placing trade . thank you sir . love from india :)
@enricosaccheggiani3192 Жыл бұрын
Explosive video. full of advanced conceps compliments . Thanks a lot
@user-vu6tm4gm1j 4 жыл бұрын
Excellent. Best explanation of debit and credit spreads I've heard. Thanks.
@projectfinance 4 жыл бұрын
Thank you for watching and commenting!
@rubenjimenez7026 3 жыл бұрын
Very clear....right what I was looking for
@shiftym1 3 жыл бұрын
This was excellent! Well done!
@kevinkilloren1611 4 жыл бұрын
Love your videos !! Question... does the P50 percentage have any meaning in the world of debit spreads ? I use it all the time in OTM credit spreads, but don't know if it applies to debit spreads. Thanks for all you do for us !!
@Nakameguro97 4 жыл бұрын
This video has the most comprehensive explanation of verticals I’ve ever seen! SUBSCRIBED. Especially valuable is extrinsic volatility’s effect on pnl, choosing OTM/ATM/ITM legs, and the last section on handling open positions. I had a question about which of the four vertical spreads to use if I thought IVR was high. But after watching your examples several times, I think I understand. Rather than saying credit spreads when IVR is high and debits when low, I need to compare the extrinsic values. I need to ask myself if I am a net seller or buyer of extrinsic value. Since extrinsic value is fatter near the ATM due to convexity, I need to pay attention to if I am buying or selling that leg. Is this right? (ok, I think the easiest approach is to sum Vegas with a negative sign for selling) Also, what are your favorite books on options (medium to advanced)? Thanks for making this video!
@JT3lite 4 ай бұрын
This is very helpful
@sabs47 4 жыл бұрын
I usually dont comment on videos but man you explained it so easily that I was able to understand vertical spreads. I'm getting my ass kicked by verticals and somehow you made it easy to understand in 30 mins and I took notes. Thanks a bunch!
@projectfinance 4 жыл бұрын
Thanks for the comment! I'm glad it helped you understand options on a deeper level. That was the goal!
@Mike-kg3hd 3 жыл бұрын
Thanks ,you are good in explaining
@paposwing2925 3 жыл бұрын
I watched the "Call Option basics" video once, and didn't understand a word. Watched it the second time and understood better. Third time, it began to make sense. Now it's almost clear. That's just me. I want to eventually make a living as a day trader. But I want to fully understand the whole concept and how EXACTLY it works. I will watch every single video until everything becomes second nature. If I can generate $500+ a week by the time I retired, it would be sufficient for me since I always like a simple life.
@sudhirpatil3434 2 жыл бұрын
Nicely explained!Thx
@beaugalbraith3242 Жыл бұрын
143. Thank you for these insights that I wouldn't have realized on my own.
@TrollFalcon 4 жыл бұрын
Perfectly explained. Thank you
@projectfinance 4 жыл бұрын
You're welcome! Thanks for the comment!
@Mike-kg3hd 3 жыл бұрын
what a great video....just amazing...keep it up
@lsw9123 2 жыл бұрын
Hi Chris, thanks once again for putting up such amazing content as always. Can I request a video explaining how to adjust vertical spreads if the trade goes against you? (Or have you already made such a video already)
@reyultra9247 3 жыл бұрын
amazing video ... one of the best on youtube for spreads. thank you did anyone one notice he didnt blink once.
@yichalnegussie5401 3 жыл бұрын
Yes
@rene69851 3 жыл бұрын
I have to use all this thing by making a Flash Card, very valuable when trading option.
@kilburncourtney 5 жыл бұрын
So much information Thank you
@projectfinance 5 жыл бұрын
You're welcome! Hope it was helpful.
@manuelguerrero9917 11 ай бұрын
Great video. Thank you.
@eatplayfilm 7 ай бұрын
Hi Chris, I have been learning a lot from your videos. Based on your experience, which exit plan can minimise the least losses? Thank u. 🤗
@marcpo1115 3 жыл бұрын
great man Thanks
@zerototalenergy150 2 жыл бұрын
you really are the best !!!!! thank you
@funrise3080 3 жыл бұрын
great information thank you
@leaaae4638 4 жыл бұрын
How do I tell if IV is high or low for a stock at the moment?
@dipashridhondtarkar453 4 жыл бұрын
Thanks ... From India
@Mwphotoinc 3 жыл бұрын
Hello Chris, I've been watching a lot of your videos. So much excellent information. And so much to digest. For me too much. In trading options, I'm assuming there is a jumping-off and diving in point. The whole vertical spreads thing is too complicated right now for me to wrap my head around. Where should I get started? With some simple Call or Put options? Curious to hear your opinion. Then in time move to more complex techniques?
@mrb1usky764 3 жыл бұрын
wow I am not there yet. but I needed to hear this. so I have another question. you are using the term spread. is that different from options?
@Juegosdecartas101 5 жыл бұрын
Great info thank you
@projectfinance 5 жыл бұрын
You're welcome and thanks for watching/leaving a comment! -Chris
@Mike-kg3hd 3 жыл бұрын
you are great,can you tell me another spread strategy which is simple to understand. i know vertical debit spread, i am looking for another less risky with moderate returns strategy.
@JK-vb9ps 3 жыл бұрын
Chris, appreciate the content as always.
@purr-purr-purr 5 жыл бұрын
hey chris, great vid..what is your process to select stocks?
@swylyqz9911 3 жыл бұрын
is there a particular ratio between the strike prices that should be selected for credit spreads? E.g. if I want to do a put credit spread and I sell the premium put at $32 and buy at $30 would that be less likely to fill and run into liquidity problems upon closing compared to selling the premium at $35 and buying at $30? Are vertical spreads closed in pairs simultaneously and only sold to others that want to purchase that particular combination of strike prices or is each of the two legs closed individually?
@markschellhammer4663 3 жыл бұрын
Do you have a video that goes into greater detail about using/determining stop losses on credit spreads? I've been successful in getting in, but getting out has caused some huge losses, wiping out my profits on previous trades. I need a better handle on how to determine and execute, and what factors help make that determination. Thanks.
@evadesc 4 жыл бұрын
is there a particular ratio between the strike prices that should be selected for credit spreads? E.g. if I want to do a put credit spread and I sell the premium put at $32 and buy at $30 would that be less likely to fill and run into liquidity problems upon closing compared to selling the premium at $35 and buying at $30? Are vertical spreads closed in pairs simultaneously and only sold to others that want to purchase that particular combination of strike prices or is each of the two legs closed individually?
@robrodas4928 4 жыл бұрын
At the end, would you buy a debit spread with high or low volatility? With low you will be be more covered from price going against you. And with high vol you will spect to have faster profits if the price goes in your direction and vol decrease. But what would you prefer at the moment of placing the trade?
@Mike-kg3hd 3 жыл бұрын
thanks again
@lucasramos3864 Жыл бұрын
Very good
@YourNewHomeExpert 4 жыл бұрын
Great videos very informative
@projectfinance 4 жыл бұрын
Thanks for the comment!
@shuangwendy1057 3 жыл бұрын
Very nice video. I just wondering that what if I buy a credit ITM put since you just mentioned credit sell when OTM. For example, if the stock price is 300 and I sell a 310/320 spread put. How about the risk potential? Is that the same as I buy a 310/320 spread call? Thanks.
@jerrynix5206 5 жыл бұрын
This is GOLD Chris thank you very much! This is what I've been trying to figure out lately, If im winning or losing and why.
@projectfinance 5 жыл бұрын
Thank you for the comment! I'm glad you found it useful! The topics in this video are definitely nuances.
@jordanting705 4 жыл бұрын
thanks. when you do credit spreads, do you look at the IV rank or implied volatility index?
@lakeshamalone8684 3 жыл бұрын
I want to know also
@ericott9895 4 жыл бұрын
Thank you for all the great videos! One thing I still don't understand is if I sell a call option and it is ITM at expiration, I'm obligated to provide the buyer with 100 shares. Why am I not obligated to fullfil the contact if trading a spread with the short ITM? Is there a buyer of the short the same as if I were to just sell an option?
@projectfinance 4 жыл бұрын
You still have to sell 100 shares if you are assigned on a short call or hold it through expiration. It doesn't matter if it's a single short option or part of a spread. However, if you own a call option at a strike price of 100 and are short a call option at a strike price of 105 and the stock is at $106 at expiration, you will buy 100 shares at $100/share by automatic exercise of your 100 call and you'll be assigned / short 100 shares at $105/share through assignment of your in-the-money 105 short call. The result is no share position since you bought 100 shares and sold 100 shares through automatic exercise/assignment of your options that you allowed to expire in-the-money. If you allow a short call to expire in-the-money but you have a long call that expires worthless, you'll end up with -100 shares per short call if you allow them to expire in-the-money or are assigned.
@sgopalakrishna7673 4 жыл бұрын
Great explanation with nice examples. If someone buys leap debit spread, and within a few months if they become ITM, what strategy one can use to close the position.
@projectfinance 4 жыл бұрын
You can simply sell the spread to close it. If you buy a call spread (buy the 100 call, short the 105 call), you can close it by selling the 100 call and buying the 105 call (same transaction).
@markelcj 4 жыл бұрын
I have bull put spread. 3/1 strike prices. 8 days to expiration. The stock price is now nearing the short strike price. Can I protect this with an OTM call spread? How would I close out my bull put spread should I need to? Just reverse it and take the loss before risking assignment? Thx.
@StefanoOlla 3 жыл бұрын
Interesting point on trading low IV debit spreads. It is my understanding that this reasoning would apply if you'd keep the position till expiration, am I correct? Meaning that by buying a monthly call spread with low IV and seeing IV increasing in the first week or so (while still having the stock price rising), we would still have the time value in our favour and the IV would add up to increase the overall extrinsic value of the spread, thus making the trade more profitable. Am I missing something? Thanks in advance and keep up the good work!
@Loveonthelinks 4 жыл бұрын
Seriously one of the most helpful overviews I've come across. Great job and thank you!!!
@projectfinance 4 жыл бұрын
Thanks for the comment and you're welcome!
@kushagrasingh7731 3 жыл бұрын
So these iv value doesn’t matter if we get a credit spread and both our legs are in the money right ?IV change only impact when the share price is below our short leg
@morris4430 4 жыл бұрын
For In The Money debit spread he bought the $145 strike and sold the $150 strike with a maximum profit potential of $124. Does this mean regardless of the stock price, as long as it stays above $150, he will receive the maximum profit of $124? Or does the profit amount vary depending on the stock price even though it's above $150?
@admiralknnight5779 3 жыл бұрын
VERY WELL EXPLAINED & SIMPLIFIED AS WELL. IN MY PLATFORM I DON'T HAVE THE POP COLUMN. HOW DO YOU CALCULATE THAT....SIMPLY AS ALWAYS, PLEASE?
@RK-bj8ho 4 жыл бұрын
Is there any disadvantage of using weekly options for trading credit spreads ..... u have max time decay, but wt is the trade off
@Nakameguro97 4 жыл бұрын
Pin risk. If the ITM leg is assigned, you’d better have sufficient cash/margin for the obligation.
@Eye_Rant 5 ай бұрын
What are your thoughts on doing call spreads on Tesla stock his week they’re on a downtrend as far as I’m concerned
@riseuplight 4 жыл бұрын
How do you determine the variance between the two leg prices?
@JK-vb9ps 3 жыл бұрын
The wider the 2 legs, the bigger the profit /loss. So it depends on your intended risk return ratio
@tee7602 4 жыл бұрын
Hi, so if I buy an option contract for $240 call at $2.40 to expire 7/2 when it was worth 200 per share and i decided to sell it because it gained $20 making it $220. (Note i sold it before expiration date). Did i make any profit? Note it didn’t hit the $242.4 break even point before i sold it
@christianvaiana8768 4 жыл бұрын
Your videos are fantastic. I just want to say you what program do u use to backtest your strategies
@projectfinance 4 жыл бұрын
Thank you for watching! I have a historical options database and I use Python to filter through the data/simulate strategies/visualize the results.
@christianvaiana8768 4 жыл бұрын
@@projectfinance In italy we say "porca vacca" that means "pig cow" as an expression of frutrasion or surprise (in this case the second one). Finally wow.
@vijayaraghavankrishnaswamy5982 5 жыл бұрын
Dear Chris, thanks for this video and great tips. Just one question, if you can kindly answer when you get a chance, please. In the example on JP Morgan credit spread (towards the middle of the 4th minute in the above video) the 110-120 call spread (52DTE) the stock price is 108.66 with 110 Call option is out of money which i understand. But you also mention the 120 call written is also out of the money. This would be in the money since it is a "short call". Is my understanding correct. Many thanks, Vijay
@projectfinance 5 жыл бұрын
Hi Vijay! In the example, I was actually talking about taking a short position in the spread by selling the 110 call and buying the 120 call. Either way, both the calls are out-of-the-money since they have no intrinsic value with the stock price below the strike prices. If the stock is at $108.66 at expiration, the 110 call and 120 call will both be worthless since they have no intrinsic value. If an option has no intrinsic value, it is said to be out-of-the-money. I think what's confusing you is the profit/loss from your perspective. If you sell an option and have a profit, you might be thinking of that as "in-the-money" since you've made money on the trade. I was talking about the options in the example from an intrinsic/extrinsic value perspective. An option that has no intrinsic value is an out-of-the-money option. I hope this helps! -Chris
@samuelvargas440 4 жыл бұрын
Hey Chris, is okay to sell a bear call spread on a weekly or two weeks in advance. Instead of selling one a 20-30 days out?
@projectfinance 4 жыл бұрын
Hi Samuel, It is "okay" to do so, but the different time frames will give each spread different characteristics: When selling short-term spreads, your strike prices will need to be much closer to the stock price to collect the same credit as the same width spread in a longer-term expiration cycle. The short-term spread's price will also be much more volatile when the stock price changes, relative to the longer-term spread. If you can, try paper trading short-term and longer-term spreads and enter them at the same time to see how they both react to changes in the stock price and the passage of time.
@laytham2754 4 жыл бұрын
very good
@projectfinance 4 жыл бұрын
Thanks!
@mmarin318 3 жыл бұрын
I was looking at doing a vertical call spread that has an expiration at the end of a given week with two calls that are very far in the money. Hypothetical example: current stock price is $100; $90 call 3 days from expiration is bought for $10.00; $91 call 3 days from expiration is sold for $9.10; cost of the spread is $90; POP = 89%. Assuming the stock price is above $90.90 at the end of the week when the contracts, this will lead to a profit of $10 (11% return). If I can do this 20 times a year, I would have 8 times my investment if it is compounded (1.11^20). This seems too good to be true. Is there something I'm missing that would make this not be a good trading strategy?
@howlytrade3012 3 жыл бұрын
Pelado sos muy groso! Great video!
@j.javiergalvez7934 3 жыл бұрын
Great video! It helped me gain more understanding of the vertical spread and it seems to others too. Could I suggest to make a video about "Bull Call Spread Vs Bull Put Spread"? I watched your videos that explain each one but I can not see the difference. Both seem to have the same profile but I'm not quite sure. If the answer is short and you could explain the difference in a reply instead of a video it would be great too.
@markschellhammer4663 3 жыл бұрын
A bull call spread would be a debit spread, buying a short strike, and selling a long strike, to reduce the cost of the bull strategy. You are betting the stock price will increase, and you will profit. A bull put spread is a credit spread. You are selling a short strike and buying a long strike, pocketing cash from the difference. You are still anticipating a bull market, but instead of wanting the market to move at or above your strike prices, like the bull call debit spread, you want the stock's upward movement to be away from you short strike on the credit spread. You want these to expire worthless, so you get to keep the premium you received. Hope this helps.
@j.javiergalvez7934 3 жыл бұрын
@@markschellhammer4663 Hi Mark, I appreciate your time. Let me see if I understood the behavior of each one. In a bull call spread, it is better if the price doesn't go too far away of your forecast price because you are at risk that someone exercises the option you sell (of course you buy a call at lower strike price but you are protected), so it is better the price stays around your high strike price. In a bull put spread, you expect that the price goes up to the higher strike price, but if the price goes to the opposite direction that you predicted and goes far below the lowes strike price option you are at risk that some exercise the option and get assigned to you (again, you are protected by the other put). In a few words, a bull call spread is better if the price doesn't go too far away in the positive direction from your forecast price. And the bull put spread it is better if the price doesn't go too far away from your lower strike price in that direction. But please, if I'm wrong I will appreciate a correction. What I want to understand is if both are equivalent or if are any advantage of using one or the another.
@mangao4334 3 жыл бұрын
So in this case, buying debit spread sometime like a week or so before earnings report to take advantage of the potential big move isn't as bad as I thought then correct? I have always thought debit spread favors iv expansion and have been hesitant to put debit trades on before earnings.
@i6207 3 жыл бұрын
that's what i thought too, this info is gold .
@thanhdrunken5811 3 жыл бұрын
Hi Chris, if a buy a vertical call spread, can I close one of the led without closing the other?
@nikhilraheja6625 3 жыл бұрын
I think that's called a ghetto spread! very effective!
@cdscds7968 3 жыл бұрын
@@nikhilraheja6625 dont u pay more premium to close?
@edwardkasimir8016 4 жыл бұрын
There was a glorious blink at 07:15 .
@projectfinance 4 жыл бұрын
Haha I had two videos where I didn't blink for some reason... Really pissed a lot of people off! Newer videos include blinking.
@edwardkasimir8016 4 жыл бұрын
@@projectfinance I thinks it's because you carefully prepare each video and read your script off of a screen that is near the camera. You don't blink so that you can concentrate on reading. Also, some of the blinks must get lost in the editing. I'm sure that now that your KZfaq commentors have made you aware of this, you will be sure to throw in a few blinks and up the illusion of personal contact.
@projectfinance 4 жыл бұрын
Edward Kasimir I’m just looking into the camera and not reading a script, but the editing does have something to do with it! Glad to have the issue fixed now :D
@danielgm98 4 жыл бұрын
If you want to close the contract before expiration date (let's say we are doing a Put Credit Spread), when you put "Close", at the bottom it says "Max Cost". Why do you have to pay to close the contract? And also, at what price do you have to sell in order to keep all the credit you collected? Thank you!!
@projectfinance 4 жыл бұрын
Because if you short a spread (sell the spread as an opening trade), you have to buy it back to close it. The profit/loss will be the net inflow/outflow of money from the two transactions. Example: I sell a put spread for $2.50 ($250 in premium collected). Later, the put spread is worth $1.50 (a premium/value of $150). At this moment, I'd have an unrealized profit of $100 on the put spread. I could buy back the spread for $1.50 and secure my $100 profit: $250 in funds received for selling the spread - $150 in funds paid out to close the spread = +$100 profit on the trade. To answer your question, what price do you need to pay for the spread to get the full profit? $0.00, which means the spread needs to expire worthless (stock price above the short put's strike at expiration). If you short the spread for $250 in premium, your max profit is $250. But you only get that max profit if the spread price reaches $0. It is a fluid process -- your P/L will change every second of the day as the spread price changes. If the spread price is worth less than what you sold it for initially, you'll have a profit. If not, you'll have a loss.
@khtan5531 3 жыл бұрын
Hi, I sold an out of the money $2 put credit spread on SPY for 16 cents a few day ago. SPY is still trading way above the strike prices of my put spread, so I can’t figure out why is the unrealized profit of my put credit spread a negative value ? Am I reading the info wrongly or doing something wrongly?
@denisjanulis9037 3 жыл бұрын
Mathematical expectation is negative in all scenarios. Can you please comment from that perspective
@markhoffman2309 5 жыл бұрын
Solid presentation
@projectfinance 5 жыл бұрын
Thank you!
@scottsmith4145 2 жыл бұрын
I prefer to the use the delta as risk management because it is tied to the underlying instruments price movement. Example if you're selling put spreads stop loss could be set to close and exit trade if a key support level is breached. Exits shouldn't just be determined based on some arbitrary amount of money lost but because the underlyings technical structure fails. Its never precise with options because there's IV and theta in there too but its the best we can do imo. On flip side you would calculate delta based on underlyings resistance levels for profit targets.
@invisiblezod7354 4 жыл бұрын
Awesome 👍🙋
@projectfinance 4 жыл бұрын
Thank you!
@Tesseus2006 3 жыл бұрын
Hi there, is that intentional that you edit your videos in such a way that you don't allow yourself to blink? I am binging on your channel and feeling a slightly hypnotized.
@timstrack4573 4 жыл бұрын
Great mat'l learned new mat'l on debit spreads are you Mike butlers brother. On tastey trade
@projectfinance 4 жыл бұрын
Yes I am his younger brother.
@philippwun7187 4 жыл бұрын
If I do not close a credit spread in the high loss, then I have the great danger of an exercise of the short position shortly before expiration because the option has hardly any extrinsic value? If the option then is exercised, I can get a margin call relatively quickly if I cannot pay the shares? Nonetheless the best videos about options by far!!!
@Nakameguro97 4 жыл бұрын
Philipp Wün Yes to both.
@MikeMesscook 3 жыл бұрын
If I'm not getting my spreads filled, would I need to increase my limit price?
@projectfinance 3 жыл бұрын
Yes, you'll need to look at the mid-price of the spread AFTER you route your order, as it may move the actual bid/ask prices of the options and therefore the spread price. This is less common on highly active stocks with great option markets. I would recommend sticking to stocks with options that have thousands of open interest at many strike prices in the standard monthly expiration cycles.
@MikeMesscook 3 жыл бұрын
@@projectfinance Thank you!
@Henry-jq9hc 3 жыл бұрын
12:40 that's crazy. Always thought low IVR=debit spread and high IVR=call spread
@robbertorizalino3648 3 жыл бұрын
Is this true also in a a 2 or 1 day expiration ?
@rgasta7765 3 жыл бұрын
So if you lose 1 trade how many do u have to win to recover the loss?
@cubaninvestment3146 4 жыл бұрын
PLEASE I NEED HELP!!🙏🙏🙏 I have a vertical spread open and the expiration is tomorrow, the vertical Spread close automatically or I have to close the sell and the buy ? Please HELP
@projectfinance 4 жыл бұрын
Is the spread in-the-money (stock price above call strikes if a call spread, stock price below put strikes if a put spread), or out-of-the-money (stock price above put strikes if a put spread, stock price below call strikes if a call spread)? If the spread is out-of-the-money, you can let the options expire. If the spread is in-the-money (both options), then you can let the spread expire and the exercise/assignment will offset and you'll have no stock position. You'll pay exercise/assignment fees. If only one option is in-the-money and it expires, you will end up with a stock position.
@cubaninvestment3146 4 жыл бұрын
projectoption thanks 🙏
@amitg9519 5 жыл бұрын
Dear Please share video on premium decay analysis and how to automate it
@projectfinance 5 жыл бұрын
Hi Amit! I don't know what you mean by automating it. Could you please clarify?
@amitg9519 5 жыл бұрын
Premium decay analysis help us to help to anticipate index direction, example if premium decay is higher on put side it means price is likely to go down and vice versa. There are u tubers in India do analyse premium decay on option chain and do successful trade. On Indian indice (Nifty 50)
@amitg9519 5 жыл бұрын
The traders record premium value on respective strike Prices and calculate probability or direction of market.
@luly2323 2 ай бұрын
What what happens if one leg is assigned before you close?
@yichalnegussie5401 3 жыл бұрын
You never blinked
@vitalesiak 4 жыл бұрын
Chris there's one thing that I dont understand; when you're an option buyer an increase on volatility is supposed to positively affect on your position, but in the video you say the opposite thing, you say that when extrinsic value goes down to zero (so does Volatility) you take the most of a debit spread (which is technically a covered buy)... I'm new into options world, so I don't know if what I'm asking is stupid, I would appreciate a response. Thanks!!!!
@projectfinance 4 жыл бұрын
With spreads, if the stock price is moving in your favor, a decrease in extrinsic value (which causes a decrease in IV if we hold time constant) will result in higher profits. If I buy a 100 call and sell a 110 call, and the stock price goes to my short 110 strike price, my 100 call has $10 of intrinsic value. My $110 call is extrinsic value, and more of it since the stock moved to the strike. In this scenario, a decrease in extrinsic would help the position immensely because the intrinsic in my 100 call would not be altered by time decay or changes in IV (which literally means a change in extrinsic if we hold time constant). If we take all the extrinsic out of my short 110 call and my long 100 call, my 100 call would be worth $10 and my 110 call would be worth $0, which means I have the full profit on my spread with the stock price at $110. An increase in IV would mean the options have more extrinsic value relative to the time until expiration. Because of this, an increase in IV will never be good for a vertical spread if the stock price is doing what you want it to do. The only scenario it is helpful is if the stock price is moving the way you don't want it to.
@vitalesiak 4 жыл бұрын
@@projectfinance thanks a lot!!!
@eddiehillergrand8882 3 жыл бұрын
projectoption dude seriously I was wondering the same thing. Thank you for answering this.
@eddiehillergrand8882 3 жыл бұрын
Idk thx for asking this question, I was wondering the same thing with spread.
@andrewlessick9647 5 жыл бұрын
can you do a spread with a cash account? i know you cant sell options without margin
@markhoffman2309 5 жыл бұрын
Yes, and you can sell defined risk SPREADs (credit spreads, iron condors, calendars......) with a cash account.
@projectfinance 5 жыл бұрын
If you're trading with tastyworks, you can't trade spreads in a cash account. You can only buy stocks/options, sell cash-secured puts and trade covered calls: tastyworks.freshdesk.com/support/solutions/articles/43000435222-what-trading-levels-does-tastyworks-offer- I thought you'd be able to trade spreads like Mark said, but that's not the case with them, unfortunately!
@twelvedozen5075 5 жыл бұрын
Mark Hoffman Which brokerage allows this in a cash account?
@geoffreyngesa6804 4 жыл бұрын
This guy knows his stuff.....
@projectfinance 4 жыл бұрын
Thanks for the comment! I hope the video helped you out.
@wrektem240 4 жыл бұрын
You’re gonna make me an option trading fool ! XD hehe
@willmurrin9344 4 жыл бұрын
Just cause you know how to trade options doesn’t mean you won’t lose money from option trading. Take it from me, learning the option trade has been the worst financial decision I’ve ever made.
@Jim00000 3 жыл бұрын
@@willmurrin9344 Why is that?
@AD-md5uk 5 жыл бұрын
do you ever blink... good video btw
@christianratcliffe9584 3 жыл бұрын
😆
@guyredares 3 жыл бұрын
He really doesn't
@gsandhu1549 2 жыл бұрын
do you have paid service ?
@eatery5607 4 жыл бұрын
Please Help anyone . I am new to the Option . and i was excited to do debit spread , because i can make money by spending less. now what i did . please help me understand my risk here , I bought Tesla Strike price $1500 OTM Call , and Sell OTM Strike $1600 Call , Expiry 22 June 2022 , Current Tesla Price is $799 . now i have some worries of early assignment . what if tesla stock rose to $1600 or more in 2021 , and the expiry still year ahead , what will happend . what is my maximum risk here . and what if stock price reach to $1600 before that expiry what should i be doing , Closing the position , If i close it then ( i would;t be assign the long call , which ofcourse i sold for closing the position ) . Please please help understand this ,. i will Really Appreciate . Thank a lot
projectfinance
Рет қаралды 892 М.
Trader Talks: Schwab Coaching Webcasts
Рет қаралды 12 М.
Option Alpha
Рет қаралды 51 М.
Trader Talks: Schwab Coaching Webcasts
Рет қаралды 7 М.
tastylive
Рет қаралды 95 М.