Finally!!!!! After looking through numerous videos finally found someone who is able to explain everything properly in detail while holding viewer attention. Simple to the point and all formulas explain. Thank you for your hard work🤓!!!!Subscribed!!!!😎
Hi Devon, Yes! I can do that. All you have to do is do the opposite trades you did when entering the position. You can actually watch me enter and exit an iron condor by watching the iron condor video I just published: th-cam.com/video/6UOk_78nVio/w-d-xo.html You can skip to the part where I'm on the tastyworks platform if you just want to see that portion of it. It's near the end of the platform portion of the video.
I have one simple question. When you say all vertical spreads have to lose all of their extrinsic value to become fully profitable. What about the bull call spread? Is it the only one out of the 4 types of vertical spreads that does become fully profitable as soon as the stock price is above the short call strike price? Because on that video you do say that it's better to sell it as soon as the stock price is above the spread to avoid losing value over time or extrinsic value. Thank you and you're amazing explaining everything.
HI Chris, Thank you so much for your video. Just one question, If i have a bearish decision of a stock, and i want to do a put spread. How to pick a put spread? in the money or out of money put spread? How far the distance between the buy put and sell put? Thank you so much your time.
Do you have to hold till expiration or can you sell anytime you are in the green?And do you have to sell the vertical spread as a whole to be profitable?
Hi i have a question regarding assignment, what happens in the first example with the stock price of 135, buy 130 strike and sell 120 strike. What happens if the stock price gets to 115 itm one week before expiration, will i get early assignment if i don’t close the position? Ty this will help so much if anyone can answer me this question. Ty project option for these very informative videos.
Very well explained. I am new to options. When you say: “For a spread to reach its maximum profit level, all of extrinsic values must come from the option”. Are those extrinsic calculated values coming from some mathematical twick handled by the broker? All is clear except that. That area in between both strike prices. I would expect the breakeven point to be the precise In the Money Transition, but in your graph, you represent that as a gradual profit increase that starts at the breakeven line, and once the stock price crosses the short-put strike line it is well understood you are in the money. That is kind of a gray area the way I understand it. Should I consider the short-put strike line as my ITM transition or should I consider the breakeven line as my ITM transition?
Thanks again! I asked it in your other video on the topic too, but why would you not execute the spread the moment it reaches its max profit potential? Isn't that just creating unnecessary risk (the stock might still tank, reducing the spread value) without any upside potential (max loss is pre-defined)?
I think I misinterpreted your question before. If you put on a spread position and it gets close to the maximum potential value it makes complete sense to close the trade since you have little left to make and everything to lose.
I did not "close" the spread trades in the examples because I wanted to show the full duration of the trades from entry to expiration so the viewer could see how the strategies perform over time and relative to movements in the stock price.
Can you buy a put option, and sell a put option in this way in this instance: EOG - $72.90 Buy $80 put with one week left Sell $78 put You know that the stock will not go up in that time. Debit paid is the maximum risk and both options will be in the money at close. The intrinsic value of the put sell helps to buy the higher put option.
I always buy way otm put when I’m bearish with a goal of profiting from extrinsic value alone. Since I don’t expect stock to ever go down to my strike ..adding a short put position at a lower strike is really free money.. right？
Your comment has great timing as I do the same thing! When buying OTM options, you can trade it in a way that doesn't necessarily mean you expect the stock to get to your strike price, or anywhere close for that matter. If the stock moves quickly towards your strike, the value of the option will increase, and can increase immensely if you bought way OTM options and the stock makes a big move towards your strike. Buying deep OTM options is a way to take advantage of mass leverage (buying a large number of contracts) for the same cost as buying less contracts of a closer strike (and more expensive option). The goal with such a trade is to close out of the options after the anticipated big move towards your strike. However, buying a deep OTM put spread will expand in value MUCH slower than buying options by themselves. But you can "leg into" the spread to create a free position and/or secure profits on the position. Example: The stock is at $250 and you buy the 100-strike put expiring in 120 days for $0.50 each. Lets say you buy 100 contracts for a total cost of $5,000 on the entry ($50 premium per option x 100 contracts). Within two weeks the stock price has plummeted to $175 and your 100-strike puts are now worth $2.50. Your current unrealized P/L is $20,000 since you paid $5,000 for the position and now it's worth $25,000 ($250 option value x 100 contracts). At this point, let's say the 90 puts are trading for $1.00. You could sell 100x of the 90 puts for $100 in premium each for a total collection of $10,000. If we do the math, you initially paid $5,000 for the 100 puts at entry, but now you've just collected $10,000 for selling the 90 puts. You own the 100/90 put spread for a net credit of $5,000. You can't lose money on this trade. If the stock is above $100 at expiration, the 100 and 90 puts will expire worthless and you'll make $5,000. If the stock ends up below $90 at expiration, the 100/90 put spreads will be worth $10.00 each ($1,000). Since you own 100 of them, you'll have a position worth $100,000, but you also entered the position for a net credit of $5,000 so your total profit is $105,000 on the trade. It's an extreme example, but it shows how you can sell the lower-strike puts later on in the trade to remove all of your risk. Of course, in this example the trader likely would have just sold a portion or all of the 100 puts when they were up $20,000, as it's unlikely the stock will go from $175 all the way below $90 by expiration. Either way, it was an extreme example to demonstrate how you could potentially sell options against an initial option purchase to remove all of your risk. -Chris
@@projectfinance Chris, absolutely fantastic to know this!. In practice though, the premium for the lower strike put you sell is probably smaller, so to compensate you probably have to write more contracts (>100 @ 90) to remove the risk of the long put. What is the impact of that on the max loss? and how would you mitigate it?
Chris, first one is bought 115 second is sold 100. If i reverse first to sold 100 and second ti bought 115, is it still consider bear put? Or I have to follow the order?
thanks for the video! i have a question: i had a bear put spread position that ran into negative value this week. so buying the short leg to close it was more expensive than selling the long leg brought in. i thought this isn't possible and max loss is the premium paid, but it seems that this is not always true (in extreme conditions like oil last week). It was a CL Jun 15/13 Bear-Put Spread.
So is he indicating that it is better to close the bear put spread at expiration to avoid any unnecessary exercising of the long put? To avoid the commission fees too of course.
Can I use the bear put spread to hedge a stock position instead a naked put? If the stock goes down reaching the short put or more I have to close the spread before expiration and buy another one if I think the stock goes down and so fort. If the spread is itm at expiration I have to sell it to collect the reward.?
I don't understand how you make money if the stock price falls below the short put strike, what if the buyer of the contract exercises his right to purchase the shares??
Just subscribed....great tutorial. How do you like tastyworks compared to other platforms? I want more options analysis for my spreads than I currently can get on robinhood. Thank you
Thank you! I love tastyworks. It's relatively lightweight compared to other brokerages and I find the functionality very easy to use. It's not the best for charting/technical analysis, but you can surely still draw on the charts and add indicators/studies.
Also, if you ever trade more than 10 contracts you will save a ton of money in commissions compared to other brokerages as tastyworks has a $10 "commission-cap" meaning you will pay a maximum in $10 per leg in your options strategy no matter how many contracts you trade (but you will still pay exchange fees for each contract). Example: you buy 100 call spreads. You will pay a commission of $20 to enter the trade ($10 per strike price / "leg" in the trade). At other brokerages, you would pay $200 at $1/contract as there are a total of 200 option contracts in 100 vertical spreads (100 option contracts at 2 strikes x $1/contract = $200 in commissions to enter the trade).
Seems almost more risky than naked puts or calls. Just because you have to wait until expiration, where as naked you can get out at any time, barring a big change in the stock.
You can get out of the trade at any time. But you're right. The downside of vertical spreads is you need a bigger stock price movement in your favor before expiration to get to the same profit as the naked option purchase.
Please... Sometimes... Maybe one or two times in a video... Please... Blink your eyes!! It's such as weird watching someone that NEVER blink for minutes! 😆 Btw, great video, like every one you do! 💪
Ahahah I know! I started making these videos last year and the first few ones I made I didn't blink at all. I don't know why. I'm blinking in more recent vids. Thanks for watching!
pls dont stop making videos man you have no idea how much we appreciate you
I appreciate the comment! Many videos to come. Any suggestions?
Excellent. Must be one the best explanations for this spread on TH-cam
Wow, thanks! Planning to do a revised version soon
Finally!!!!! After looking through numerous videos finally found someone who is able to explain everything properly in detail while holding viewer attention. Simple to the point and all formulas explain.
Thank you for your hard work🤓!!!!Subscribed!!!!😎
Was happy to see you on Tasty Trade. 🤙🏼🤠
Chris, you are truly among the best teachers of stock trading. Thank you so much. I am subscribed....
you call teaching ; reading note cards? smh.
There is such a genuineness in all of your videos. You explain the content so well from every angle. Thank you
yes please. always make video this way by showing chart,even , analyse option chain.
Best tutorial I have found on TH-cam!!! Can you do a tutorial on how you manually close out the positions on a iron condor before expiration?
Hi Devon,
Yes! I can do that. All you have to do is do the opposite trades you did when entering the position. You can actually watch me enter and exit an iron condor by watching the iron condor video I just published:
th-cam.com/video/6UOk_78nVio/w-d-xo.html
You can skip to the part where I'm on the tastyworks platform if you just want to see that portion of it. It's near the end of the platform portion of the video.
Agreed. I'm just learning and it was so confusing until I watched this video! Thanks for sharing!
Could you explain how you choose the Long Put entry price?
Awesome vid man. Trying to master vertical spreads. Options hurt my brain, so many moving parts !
@@alexandriamckoy I made $110 on my first Bear Put Spread on "CAT". I'm so happy !!
This is an excellent and very informative video! Thank you so much!
Thanks Kelly and you're welcome!
I have one simple question. When you say all vertical spreads have to lose all of their extrinsic value to become fully profitable. What about the bull call spread? Is it the only one out of the 4 types of vertical spreads that does become fully profitable as soon as the stock price is above the short call strike price? Because on that video you do say that it's better to sell it as soon as the stock price is above the spread to avoid losing value over time or extrinsic value. Thank you and you're amazing explaining everything.
HI Chris, Thank you so much for your video. Just one question, If i have a bearish decision of a stock, and i want to do a put spread. How to pick a put spread? in the money or out of money put spread? How far the distance between the buy put and sell put? Thank you so much your time.
Good tutorial!
I already use vertical put spreads but this have me a couple insights I wasn't aware of.
Do you have to hold till expiration or can you sell anytime you are in the green?And do you have to sell the vertical spread as a whole to be profitable?
To completely secure your profit, you have to sell/close the entire spread. You can exit the spread whenever you want to.
@@projectfinance and you would hit close and then when it comes up is it sell on both legs?
Hi i have a question regarding assignment, what happens in the first example with the stock price of 135, buy 130 strike and sell 120 strike. What happens if the stock price gets to 115 itm one week before expiration, will i get early assignment if i don’t close the position? Ty this will help so much if anyone can answer me this question. Ty project option for these very informative videos.
Do you have to close in-the-money call debit spreads?
I gave it a thumbs up but gave up about 3/4 the way through. Thanks for the content
Thanks for watching and the thumbs up!
Sorry I'm confused, don't you lose potential profit if price goes below the put you sold?
Very well explained. I am new to options.
When you say: “For a spread to reach its maximum profit level, all of extrinsic values must come from the option”. Are those extrinsic calculated values coming from some mathematical twick handled by the broker? All is clear except that. That area in between both strike prices. I would expect the breakeven point to be the precise In the Money Transition, but in your graph, you represent that as a gradual profit increase that starts at the breakeven line, and once the stock price crosses the short-put strike line it is well understood you are in the money. That is kind of a gray area the way I understand it.
Should I consider the short-put strike line as my ITM transition or should I consider the breakeven line as my ITM transition?
Is there a way to remember which strike is the long versus short with all four of these spreads?
Your very good... Is it better to do Put Spreads and get the Premium ? Ty again.
Hi can I clarify if the stock price hits at or below my sell put strike price at expiration will I be forced to buy 100 stocks?
Thanks again! I asked it in your other video on the topic too, but why would you not execute the spread the moment it reaches its max profit potential? Isn't that just creating unnecessary risk (the stock might still tank, reducing the spread value) without any upside potential (max loss is pre-defined)?
I think I misinterpreted your question before. If you put on a spread position and it gets close to the maximum potential value it makes complete sense to close the trade since you have little left to make and everything to lose.
I did not "close" the spread trades in the examples because I wanted to show the full duration of the trades from entry to expiration so the viewer could see how the strategies perform over time and relative to movements in the stock price.
This is such a great video. I think if you have mentioned the collateral calculation, it will make it more complete!
Thank you so much for this video!
Can you buy a put option, and sell a put option in this way in this instance:
EOG - $72.90
Buy $80 put with one week left
Sell $78 put
You know that the stock will not go up in that time.
Debit paid is the maximum risk and both options will be in the money at close. The intrinsic value of the put sell helps to buy the higher put option.
only 2,000 views?! this is golden
Thanks for watching and leaving a comment! I'm glad you liked the video!
I always buy way otm put when I’m bearish with a goal of profiting from extrinsic value alone. Since I don’t expect stock to ever go down to my strike ..adding a short put position at a lower strike is really free money.. right？
Your comment has great timing as I do the same thing! When buying OTM options, you can trade it in a way that doesn't necessarily mean you expect the stock to get to your strike price, or anywhere close for that matter. If the stock moves quickly towards your strike, the value of the option will increase, and can increase immensely if you bought way OTM options and the stock makes a big move towards your strike.
Buying deep OTM options is a way to take advantage of mass leverage (buying a large number of contracts) for the same cost as buying less contracts of a closer strike (and more expensive option). The goal with such a trade is to close out of the options after the anticipated big move towards your strike.
However, buying a deep OTM put spread will expand in value MUCH slower than buying options by themselves. But you can "leg into" the spread to create a free position and/or secure profits on the position.
Example: The stock is at $250 and you buy the 100-strike put expiring in 120 days for $0.50 each. Lets say you buy 100 contracts for a total cost of $5,000 on the entry ($50 premium per option x 100 contracts).
Within two weeks the stock price has plummeted to $175 and your 100-strike puts are now worth $2.50. Your current unrealized P/L is $20,000 since you paid $5,000 for the position and now it's worth $25,000 ($250 option value x 100 contracts).
At this point, let's say the 90 puts are trading for $1.00. You could sell 100x of the 90 puts for $100 in premium each for a total collection of $10,000.
If we do the math, you initially paid $5,000 for the 100 puts at entry, but now you've just collected $10,000 for selling the 90 puts. You own the 100/90 put spread for a net credit of $5,000. You can't lose money on this trade. If the stock is above $100 at expiration, the 100 and 90 puts will expire worthless and you'll make $5,000.
If the stock ends up below $90 at expiration, the 100/90 put spreads will be worth $10.00 each ($1,000). Since you own 100 of them, you'll have a position worth $100,000, but you also entered the position for a net credit of $5,000 so your total profit is $105,000 on the trade.
It's an extreme example, but it shows how you can sell the lower-strike puts later on in the trade to remove all of your risk. Of course, in this example the trader likely would have just sold a portion or all of the 100 puts when they were up $20,000, as it's unlikely the stock will go from $175 all the way below $90 by expiration. Either way, it was an extreme example to demonstrate how you could potentially sell options against an initial option purchase to remove all of your risk.
-Chris
@@projectfinance Chris, absolutely fantastic to know this!. In practice though, the premium for the lower strike put you sell is probably smaller, so to compensate you probably have to write more contracts (>100 @ 90) to remove the risk of the long put. What is the impact of that on the max loss? and how would you mitigate it?
Hi, I have tried looking everywhere but wanted to know, what happens when you sell a put and then buy a call at a lower price?
thank you so much . this was very clear
Chris, first one is bought 115 second is sold 100. If i reverse first to sold 100 and second ti bought 115, is it still consider bear put? Or I have to follow the order?
Truly appreciate your videos.
Great information! Needed this
Can you exit the trade before expiration, or do you have to hold the options till expiration date?
You can exit and options trade at any time
thanks for the video! i have a question: i had a bear put spread position that ran into negative value this week. so buying the short leg to close it was more expensive than selling the long leg brought in. i thought this isn't possible and max loss is the premium paid, but it seems that this is not always true (in extreme conditions like oil last week). It was a CL Jun 15/13 Bear-Put Spread.
Great video, thank you!
So is he indicating that it is better to close the bear put spread at expiration to avoid any unnecessary exercising of the long put? To avoid the commission fees too of course.
Question: is it not good to hold until expiration if you want to avoid assignment?
best video explaining this strategy!
Can I use the bear put spread to hedge a stock position instead a naked put? If the stock goes down reaching the short put or more I have to close the spread before expiration and buy another one if I think the stock goes down and so fort. If the spread is itm at expiration I have to sell it to collect the reward.?
Hi, if stock price is 300, and I foresee it going down, can I do a “guaranteed” bear put spread by doing 303/302 ?
So basically protects you from losses its like having insurance on the bets ?
How do you pick strikes
Do I need to own the shares to do a put debit spread?
No I believe both puts are put options, you don’t need to own the stock. One you buy to open, the other you sell to open.
Very nice video
This dude the best
Flawless video. Thank you for helping me understand this concept.
Thanks for watching and commenting! I'm glad the video helped!
I don't understand how you make money if the stock price falls below the short put strike, what if the buyer of the contract exercises his right to purchase the shares??
Just subscribed....great tutorial. How do you like tastyworks compared to other platforms? I want more options analysis for my spreads than I currently can get on robinhood. Thank you
Thank you! I love tastyworks. It's relatively lightweight compared to other brokerages and I find the functionality very easy to use. It's not the best for charting/technical analysis, but you can surely still draw on the charts and add indicators/studies.
Also, if you ever trade more than 10 contracts you will save a ton of money in commissions compared to other brokerages as tastyworks has a $10 "commission-cap" meaning you will pay a maximum in $10 per leg in your options strategy no matter how many contracts you trade (but you will still pay exchange fees for each contract). Example: you buy 100 call spreads. You will pay a commission of $20 to enter the trade ($10 per strike price / "leg" in the trade). At other brokerages, you would pay $200 at $1/contract as there are a total of 200 option contracts in 100 vertical spreads (100 option contracts at 2 strikes x $1/contract = $200 in commissions to enter the trade).
Can anyone tell me how time and volatility affect bear put trade, please?
Great video :)
Thank you!
So you can only buy puts where it is offered.
If my account ends up -100 shares of short stock(long put ITM and short put OTM), what is going to happen? how to cover these 100 shares?
Just buy 100 shares. You’ll have a big cash credit In your account from shorting then shares which can be used to buy the shares back.
Does anyone have any links that show us how to build these charts in excel?
hello, can you pls help me i am new and i am really struggling to understand this
If only I would’ve known this BEFORE I lost half my lifes savings in trying to place I’ll fated puts on GME! I was So dumb. I feel like an idiot!
Seems almost more risky than naked puts or calls. Just because you have to wait until expiration, where as naked you can get out at any time, barring a big change in the stock.
You can get out of the trade at any time. But you're right. The downside of vertical spreads is you need a bigger stock price movement in your favor before expiration to get to the same profit as the naked option purchase.
I just don't get it,this one cancels that one
I still don't understand the whole buying two contracts idea I guess
Please... Sometimes... Maybe one or two times in a video... Please... Blink your eyes!! It's such as weird watching someone that NEVER blink for minutes! 😆
Btw, great video, like every one you do! 💪
Anyone buying calls of AMC ?
I like Your video but damn homie you gotta start blinking your eyes I'm starting to think your a alien
Ahahah I know! I started making these videos last year and the first few ones I made I didn't blink at all. I don't know why. I'm blinking in more recent vids. Thanks for watching!
Chris could you please speak a bit slower please. love your vids.
you can play video at 0.75x
Lost 24 grand on a put deb. Spy is rigged
Jesus Christ how faster can y you explain .. what a waste of time ..