Vertical Spread Trading | When to Take Profits & Losses

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Vertical Spread Trading | When to Take Profits & Losses

Рет қаралды 142,703

Күн бұрын

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When trading vertical spreads, when should you take profits or losses on your position?
In this video, I'll discuss general guidelines for using risk/reward to determine appropriate times to take a profit or loss when trading debit or credit spreads.
Since vertical spreads have limited profit potential, the decision to take profits is much easier than when you're trading "unlimited" profit potential options strategies such as long calls or long puts.
On the other hand, vertical spreads also have limited loss potential, which means there's a point in which taking losses doesn't make sense.
READ THE FULL GUIDE: www.projectoption.com/vertica... 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.

Пікірлер: 122

@projectfinance 6 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

@marlonsitoprunita7436 3 жыл бұрын

This was great, thanks, been searching for "how do calendar spreads make money?" for a while now, and I think this has helped. Have you ever come across - Consaac Dumbfounded Control - (search on google ) ? It is a good one off guide for discovering how to master options trading without the hard work. Ive heard some unbelievable things about it and my mate got excellent results with it.

@drunkkajun 4 жыл бұрын

Had I watched this video last week would have an extra $500 in my account. Excellent presentation. I had 85-90% of my potential profit locked in on 2 positions and gave back a nice portion on AAPL and DISN at the end of the week. Your explanations and examples are stellar. Thanks for your content.

@luiscasas9467 4 жыл бұрын

i just viewed all your 10-11 vertical spread videos. You make things so extremely easy to understand. Thanks immensely!!!

@projectfinance 4 жыл бұрын

Thank you!

@AddictedtoSets 3 жыл бұрын

Awesome video!! I was trying to figure out an exit strategy...this was incredibly helpful. Well done:)

@glennt8687 5 жыл бұрын

Very clear and concise and easy to understand. Thank you for taking the time to do this video.

@projectfinance 5 жыл бұрын

You're welcome! Thank you for the comment. I appreciate it. I'm glad the video was helpful. -Chris

@tammy3458 2 жыл бұрын

❤️ ur channel!!! U make options so clear & understandable!!! U don’t leave any details out! Thanks so much for ur hard work:)

@nicasiomendoza209 2 жыл бұрын

Thank you so much! I'm used to let my operations expire to keep the whole credit, but this definetly makes more sense. Now, if I'm calculating my POP out off volatility contraction, wouldn't to constantly roll the operation weaken the volatility contraction possibility?

@ashokkumarsingh8640 3 жыл бұрын

Very nicely explained. Most logical and simple. Thanks

@phxhoward 4 жыл бұрын

Great video. What is the technique for exiting out of a put credit spread favorably or unfavorably? Buy to close the higher strike and let the lower strike expire or close both contracts?

@miangevictorin9855 6 жыл бұрын

Easy to understand, great lessons learned. Thanks

@projectfinance 6 жыл бұрын

You're welcome! Thanks for commenting. -Chris

@bzinny 3 жыл бұрын

thanks, I was getting mad when my spread profit wasn't at max when it reach my target. now I know to just take the money and run

@canigeteb1847 3 жыл бұрын

can you please explain vertical debit call, how to close ,when to take profit, what should we do when underlying assets are not moving up. this put spread is fantastic.

@cbro777 6 жыл бұрын

Oh wow! I needed this.

@projectfinance 6 жыл бұрын

Glad you enjoyed the video, Charles!

@sheronhenry8571 4 жыл бұрын

Great content and explanations, Thank you. Sheron

@projectfinance 4 жыл бұрын

Thank you, Sheron! I appreciate you watching.

@quadcondor8619 4 жыл бұрын

Great presentation, you did a great job

@projectfinance 4 жыл бұрын

Thank you! I appreciate the comment.

@mrleenudler Жыл бұрын

Thanks for your great educational series on options, it's highly appreciated! So for a question about taking profits. In your example of the bull call spread, you choose to take profits at $9 because of the risk/reward ratio. In my understanding, keeping the spread and not taking profits at this point, is exactly equal to shorting a farther out of the money spread at the same point i time (disregarding the previous trade). Am I right in thinking this, or is there something I don't get?

@erikgonzalez7229 4 жыл бұрын

Great video!!! What book(s) would you recommend on options risk management?

@ergonautilus 2 жыл бұрын

A link to the playlist for this series in the video description would be helpful.

@rayrene 6 жыл бұрын

Great video, great information, thank you!

@projectfinance 6 жыл бұрын

You're welcome! Thank you for the comment. -Chris

@PlayThatGameDE 4 жыл бұрын

Awesome and logical! Thank you!

@projectfinance 4 жыл бұрын

Thanks for watching!

@travisseurattan8206 4 жыл бұрын

Do you have a video on setting up your thinkorswim charts? These views are way better than the default

@mattf1935 6 жыл бұрын

Excellent videos, thanks!

@projectfinance 6 жыл бұрын

You're welcome. Thanks for watching!

@johnsnow9232 6 ай бұрын

Excellent video

@feranmi9131 2 жыл бұрын

I’m completely new to all of this and trying to learn, the vids are great. I just wanted to ask is there ever a chance of your options being assigned doing these spreads I.e you have to buy the 100 shares of a stock. Sorry if this is a stupid question, still trying to learn all this.

@ksafan838 6 жыл бұрын

Good stuff. Keep it up!

@projectfinance 6 жыл бұрын

Thanks for the comment!

@ulysseslara1282 3 жыл бұрын

Easiest spreads video to understand! Wow

@haadisaqib1787 4 жыл бұрын

I understand everything about options but I just want to know how you enter in the trade. do you use price action, earnings, and ETC. what do you base your bias on?? please help

@johnkettenbach9868 4 жыл бұрын

Can you still be assigned stock when selling put/call spreads if you close out your contract early at 50% profit before expiration. Meaning if you closed out the position that was a contract with 45 days at 10 days to expiration and closed the position on spread are you still at risk of assignment?

@sanketsawant7475 3 жыл бұрын

It's also important to see time remaining to exp. If we getting more than 50% of spread in half time them its good to book profit

@cryptocomplete 11 ай бұрын

Another advantage of exiting with a profit earlier is to be able to reuse your buying power again on some new trade that has more profit potential than the remaining potential of the current trade.

@suk4330 4 жыл бұрын

Hi my question is regarding taking profits in put credit spreads. Both long and short puts are well below the stock price. long put is showing a profit and short put is showing a loss. I would assume I take profit, when the difference between these comes close to zero?

@agarrett4693 4 жыл бұрын

Very helpful.

@shifinshaji8888 3 жыл бұрын

While selling vertical spreads, which date till expiration is good to choose?

@earthlastdaybiblechannel 3 жыл бұрын

Thank you

@RudeandRude 3 жыл бұрын

@projectoption what should I do if the short call strike is exercised and gets assigned to me? I have a bull call spread on TSLA but it's entirely possible that it gets exercised since its so far ITM.

@Kurtie7 7 жыл бұрын

Thank you, friends....Good..

@projectfinance 7 жыл бұрын

You're welcome! Thanks for the comment.

@khushboo2300 3 жыл бұрын

sir can u make live trading option videos where you are focusing on various aspects , greeks and other think to take care while placing a trade ?

@mariasv6308 4 жыл бұрын

Hi, thanks for the video. Could you please tell me the actual steps involved in exiting a vertical spread. I understand the why, I want to know how to actually exit.

@c0c0sdad 4 жыл бұрын

If you sold a credit spread you simply purchase it back if you exit early. If it is out of the money you don't do anything. It'll expire worthless and you keep the credit.

@munster1404 2 жыл бұрын

Just a question though, what if you get assigned on the short put if it gets ITM? Isn’t is better to close it ASAP?

@cubaninvestment3146 4 жыл бұрын

So,if my spread is on 0 already I have to close it or just wait to the expiration and it close automatically?

@AlexLopez-nv8pi 2 жыл бұрын

Dude, awesome videos. Thank you so much. My only constructive comment is to try to use round numbers in your examples. It would make it so much easier for the viewer to follow with his/her own quick mental math, which is very powerful for learning/retention.

@projectfinance 2 жыл бұрын

Thanks for watching and providing feedback

@wedgewoodpinseekerston9726 6 жыл бұрын

Apologies for a neophyte question, but what prevents the buyer of the put you sell (in the bull put example), from exercising should you get it wrong and the stock moves below that short put strike price? How do those get settled?

@projectfinance 6 жыл бұрын

You could definitely get assigned on the short option of a put spread. However, traders rarely exercise options unless the option's extrinsic value is extremely low (close to $0). The reason for that is the option buyer sacrifices the extrinsic value when they exercise, so it doesn't make sense to exercise when the option has lots of extrinsic. They'd be better off selling the option and then buying/selling shares instead. Check out our video on exercise/assignment for more info: kzfaq.info/get/bejne/oKx3rbV038uRlKc.html I hope this helps! -Chris

@wedgewoodpinseekerston9726 6 жыл бұрын

projectoption Makes sense, thanks for the concise answer. Your videos are the best there is.

@VirmanaMarketing 3 жыл бұрын

Quick question - what's your criteria... buy Bull Call Spread or Sell the Put Spread? What do you prefer? I do disagree with the exit strategy here. You closed the video with the right advice... understand the risk and have an exit strategy before you enter the trade. if you entered a trade with a 45 days expiration date, why would you panic on the first few days. You have to let the trade run at least to a point you are comfortable with and have an exit strategy right away. Depending on the volatility stock may move wildly on both sides of your trade *especially $TSLA, so you have to be patient and trust your setup. Great video.

@kevinjfitzgerald4809 5 жыл бұрын

Can you buy/sell one half of a vertical spread at any time, or do you have to do both at the same time? If my sold call is profitable and my buy call is negative, could I sell just the short call and wait out the long position?

@scottsmith4145 2 жыл бұрын

Usually together as a unit unless your broker has authorized to break them.

@levantateyora9317 4 жыл бұрын

But wish one of more profitable buying call or selling a put or doing a spread?

@nofomo1222 4 жыл бұрын

How do you close the trade?

@javamochafrap 5 жыл бұрын

whats the ideal time to hold a vertical? a week or month? is it possible to make the same % profit using weeklys vs monthlies?

@projectfinance 5 жыл бұрын

It's hard to say there's an ideal time to hold a vertical. It all depends on what your management strategy is (close at a certain percentage of profits, when the stock price reaches a certain level, etc.). It's possible to achieve similar profits using weeklies vs. monthlies, but the spreads will behave very differently and the setups will likely be different.

@siddheshtulaskar7132 6 жыл бұрын

Double Calendar Spreads. Suppose the Call side debit is 3.18 and put side debit is 3.4, so my margin required will be the most money I can lose 3.4 * 100 i.e., 340 usd or it will be 3.18 + 3.4 = 6.58 *100 i.e., 658 usd?

@projectfinance 6 жыл бұрын

Siddhesh, Since you can lose on both calendar spreads at the same time the maximum loss is the combination of the two debits. In your example, the max loss and margin requirement is going to be $658.

@jimmystar6730 4 жыл бұрын

Great info

@projectfinance 4 жыл бұрын

Glad it was helpful!

@CS-ww3bs 3 жыл бұрын

My question is what if you got stuck with a trade that's profitable but no one wants. Like you sell at the mid or even a little below and no one will take it

@emmanuelnsoedo5505 3 жыл бұрын

Chris you are one the best teachers i have seen, keep it up. How much does it cost to subscribe to your channel--project option?

@projectfinance 3 жыл бұрын

It's free! Thank you for the comment!

@Kilograham1 3 жыл бұрын

I feel like I owe you $$ for all the education you've given me

@leob8475 Жыл бұрын

How come no mention of stop loss order and profit taking sell limit order after placing the initial trade?

@maxdaytrader5463 5 жыл бұрын

hey man could u show 3 1 vertical spread strategy for daytrading, is that possible for lets say 30c target 10c loss or impossible?

@projectfinance 5 жыл бұрын

Hi Max, I am having trouble understanding your question. I apologize! If you could rephrase the question/add some more details, I'll do my best to answer. -Chris

@enki5420 Жыл бұрын

When trading vertical spreads, taking losses actually becomes illogical the lagrer the loss gets because you have more to gain and little left to lose. However,if a trader is sizing up and can't take the maximum loss, then a loss-taking strategy should be thought out before entering the postion.

@swanson_ 2 жыл бұрын

Does taking profit at 50% offer the best returns over the long term? Has anyone back tested something like this?

@orian3131 5 жыл бұрын

What moving averages are you using for your charts?

@projectfinance 5 жыл бұрын

I have a 10, 20 and 50 day moving average.

@ankitshah3451 5 жыл бұрын

projectoption are they simple MA or exponential

@chaunnamichole944 4 жыл бұрын

I'm confused. I thought that the most you could lose in selling a put/call is the width of your spread PLUS the credit price. For example, if I have a 130/135 spread for a credit of $1.50 the most I can lose on this trade is 5+1.50 = 6.50 x100 = $650. Correct me if I'm wrong.

@projectfinance 4 жыл бұрын

The most you can lose is the width of the spread MINUS what you received. The reason is because a spread can only be worth the width of the strikes. If you sell a $5-wide spread for $1.50, you sold a spread with a maximum potential value of $5.00 for $1.50. The most it can move against you is $3.50.

@chaunnamichole944 4 жыл бұрын

@@projectfinance I just went back and looked at my notes. You're right! This stuff is so confusing but I'm going to get it. Now I just have to understand why I'm risking so much to make so little.

@projectfinance 4 жыл бұрын

@@chaunnamichole944 you don't have to set up trades like that. But if you set up trades with a high probability of making money (such as selling a call spread that has strike prices above the stock, or selling a put spread with strike prices below the stock) the trade will have more risk than reward. Profit/Loss potential and probability of making money are closely related.

@dennis_ha 3 жыл бұрын

Could I just do a put bull spread way OTM to stay safe?

@dwiii1635 3 жыл бұрын

Yeah, for a much smaller gain, sure.

@moisedhaiti2524 4 жыл бұрын

When you say to take a lost, Do you just closed your position? or you just waited to be exercised?

@projectfinance 4 жыл бұрын

Yes, I meant take the loss as in close the trade. Typically, you don't want to hold in-the-money options through expiration, as you'll end up with a stock position if only one of the options in the spread expires in-the-money. You may run into margin requirement issues with the shares, and you'll be exposed to the stock price movements after your options expire.

@JustinFurniel 4 жыл бұрын

projectoption can you close the trade before you are in loss territory?

@giangnguyen8344 3 жыл бұрын

@@JustinFurniel you can close any time before expiration date

@241Topic 4 жыл бұрын

Kind of confused on the Debit Spread, here's a scenario: your Account is worth $2000. XYZ Stock Price: $ 150 Long Call Strike : $145 @ $8.00 Short Call Strike: $155 @ 3.99 ................................................ Max Profit = [(155 - 145) - (8 - 3.99)] * 100= [10 - 4.81] * 100 = $519 Max Loss = 4.81 *100= $481 (Which is the cost of the Spread too) So entering the Spread your Account would be at: 2000 - 481 = $ 1519 Let say at Expiration, XYZ is $160: your Spread expires worthless and you make $519, and your final Account balance bumps to ( $1519 + $ 519 = $2038)?? $38 gain ?

@projectfinance 4 жыл бұрын

Hi Tino, Long 145 Call @ $8.00 and Short 155 Call @ $3.99 Max Loss: $8.00 - $3.99 = $4.01 x 100 = $401 Max Profit: $10 Strike Width - $4.01 = $5.99 x 100 = $599 Initial Account Value: $2,000 You buy the spread for $401 and therefore your account's buying power will be reduced by $401, but you own the spread worth $401 so your account does not drop to $1,599 in value. It is still worth $2,000. The stock is at $160 at expiration meaning the 145/155 call spread is worth the full $10 value that it can be worth. You now own a $1,000 spread that you purchased initially for $401. Your profit is $599. Your account is now worth $2,599 - commissions/fees - exercise/assignment fees. If you sell the spread for $10 before expiration, you won't pay exercise/assignment fees. If you allow the spread to expire fully in-the-money, you'll pay exercise/assignment fees but still make the max profit on the spread.

@JoseGarcia-kr3xx 5 жыл бұрын

I think its a good thing to sell puts because you know the risk off top..take a profit along the way or wait till expiration and the probability of wining the trade is good.i like to know my probability of winning so selling puts is a no brainer.

@thiemannnici3314 5 жыл бұрын

The Blended Model strategy covers the most powerful trading method you need to start a successful trading carrier. just started learning it few weeks back and the graph it show are making sense. easy to understand and can be applied even by newbies when follow the simple principle. To learn more about this concept, i recommend get more detail about it on google.

@javamochafrap 5 жыл бұрын

In the example, why would you risk more, 725 to make less 225 ?

@projectfinance 5 жыл бұрын

In options trading, every position's risk/reward relates to the probability of making money. When risking more than you can make, the probability of making money is higher than 50%. When risking less than you can make, the probability of making money is lower than 50%. It's very common to have more risk than profit potential when selling options/vertical spreads.

@charlierobles316 3 жыл бұрын

It's scary that I am understanding all this!!!!!

@Sensei__Nate Жыл бұрын

Scary for other people👀

@JP-ij3pm 4 жыл бұрын

It just amazes me why does everyone make it so complicated. The only thing I can figure out is they do not know how to come across so the newbies can understand. Its sad if I knew everything I would not be looking at this video . come on guys explain it to a newbie

@DeeGetGuap 3 жыл бұрын

Still having trouble figuring out when to close for at least 85% profit. Please help

@IlIKRATOSIlI 3 жыл бұрын

You and me both. I thought with a vertical spread you dont care how high the price goes.

@mikerodriguez2197 3 жыл бұрын

Hello Chris: How do I contact you? Thanks.

@LeoGawd 3 жыл бұрын

is this for a debit spread ? im confused when you say "what you paid for "

@JunweiSays 3 жыл бұрын

Yes. Debit is paid out and credit is received

@lawjef 5 жыл бұрын

The main reason traders use vertical debit spreads is not because of the psychological temptation to hold your position beyond a logical time to take profits. The main reason is because you reduce the upfront costs allowing you to increase your positions size (for the same potential $ loss). If you consider it unlikely the price will rally beyond $x, giving away that upside in exchange for a larger number of contracts is an efficient trade off. If you have problems existing an option position you probably shouldn’t be trading. That cognitive handicap will manifest itself in other ways, even if you trade spreads.

@rodgilley64 4 жыл бұрын

When I try to close a spread (one was 130% gain) on Ribinhood, it goes pending, end of day it cancels! Doesn't close, gain lost. Do you have any idea why this is happening???

@Alex-zp5rr 4 жыл бұрын

Sell stocks with high volume in options, like Apple, SPY, or Microsoft to avoid this problem with spreads, if the stock has low option volume you have to sell it below value so it can get filled. So if it’s worth 1.70 sell at 1.60-1.50

@rodgilley64 4 жыл бұрын

Thank you for helpful response!

@AlvinIsChipmunk 4 жыл бұрын

TSLA was 346 before?! dang it's 1k now..

@pradyunpandey2555 3 жыл бұрын

It’s 800 now after a 5 way split

@user-pd3el2lo3x Жыл бұрын

Now its 165

@danedickerson9433 Жыл бұрын

I wish I bought TSLA back then...

@knowledgeforlife2420 4 жыл бұрын

Sound like my high school Physic teacher 👨‍🏫

@lawjef 5 жыл бұрын

Serious question: you recommend tastytrade on all your videos but you use thinkorswim to illustrate all of your option video examples. Why the disconnect? Are you not a big fan of tastytrade?

@projectfinance 5 жыл бұрын

Hi Jeff, That's a great question. The answer is that I switched over to tastyworks after a while as I always knew I was going to. Just took some time to commit. The videos that were created BEFORE that switch may have some TOS content. From here on out it will be all tastyworks.

@projectfinance 5 жыл бұрын

I am a BIG fan of the tastytrade guys. I got my start in this industry working for Tom. :D