What's The Best Vertical Spread Option Strategy?
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- เผยแพร่เมื่อ 5 ส.ค. 2024
- What's The Best Vertical Spread Option Strategy? | Coffee With Markus | Episode 60
0:00 Market Recap
14:00 Top 10 PXO Strategy Reminders
19:34 Viewer Comment
Now that we’ve covered many of these strategies, I want to discuss which one is the best for any given situation.
Call Debit Spread
A call debit spread is a position in which you buy a call option and sell a call option at different strike prices using the same expiration date.
When to use? This strategy is used when you believe the stock is increasing in price.
Why trade? Trading this position can potentially reduce the overall cost associated with taking on the trade. This type of strategy also reduces the break-even price of the trade.
Loses value when? The underlying stock moves sideways or downward.
Max Risk? The max risk associated with this strategy is the cost of the premium paid to take on the trade.
Max Reward? The max reward for this strategy is the difference between the strike price of the two calls, multiplied by 100. Minus the premium paid to take on the trade.
Put Debit Spreads
What is it? A put debit spread is a position in which you buy a put option and sell a put option at different strike prices with the same expiration date.
When to use? This strategy is used when you believe the stock is decreasing in price.
Why trade? Trading this position can potentially reduce the overall cost associated with taking on the trade. This type of strategy also lowers the break-even price of the trade.
Loses value when? The underlying stock moves sideways or downward.
Max Risk? The max risk is the cost of the premium paid to take on the trade.
Max Reward? The max reward is the difference between the strike price of two calls, multiplied by 100. Minus the premium paid to take on the trade.
Call Credit Spreads
What is it? A call credit spread is were you sell a call option and buy a call option as protection. These option contracts have different strike prices but have the same expiration date.
When to use? This strategy is used when you believe the stock is decreasing in price or trading sideways.
Why trade? Trading this position produces a credit in the form of the premium received for selling the put option. Buying the additional call option provides protection, limiting the risk of the trade.
Loses value when? The underlying stock moves up quickly past your strike price.
Max Risk? The max risk associated is the difference between the strike prices, multiplied by 100.
Max Reward? The max reward is the premium received for selling the call option, minus the premium paid for protection.
Put Credit Spread
What is it? A put spread is a position in which you sell a put option and buy a put option as protection. Different strike prices but the same expiration date.
When to use? This strategy is used when you believe the stock is increasing in price or trading sideways.
Why trade? Trading this position produces a credit in the form of receiving premium. Buying the additional put option provides protection, limiting the risk of the trade.
Loses value when? The underlying stock moves downward sharply.
Max Risk? The max risk associated with this strategy is the difference between strike prices, multiplied by 100.
Max Reward? The max reward for this position is the premium received for selling the put option, minus the premium paid for protection.
Call debit spread • Call Debit Spreads Exp...
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Here is where I begin the discussion on what's the best vertical options strategy: th-cam.com/video/87hx-63DsU0/w-d-xo.html
And here are the other videos that I referenced during today's session:
Call Debit Spreads Explained: th-cam.com/video/9tkZOnG2bAs/w-d-xo.html
Put Credit Spreads Explained: th-cam.com/video/8OKG9U9LAog/w-d-xo.html
Please let me know what you think in the comments!
Good info...Thank You !!!!!
best explanation I have heard so far
Thanks, MaryKay. Much appreciated! "See you" in the next video.
Yes
Thank you Markus, you are very generous with your free information I love your sessions.
Hi Charlotte, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
YES
Awesome! Thank you for watching!
God bless you
Thank you! :)
👍
This is the very best!...explanation of vertical spreads you will find anywhere! That's...anywhere!
Terry
i agree
Thank you! 😀
Max risk on credit spreads is the spread width LESS THE CREDIT RECIEVED
YES, you are right. I will correct this. Thanks for pointing it out.
... schweet... !!!
Awesome! Thank you for watching! :)
Does this software give good advice for people with small accounts and help them to excel and upgrade to larger accounts? I’m asking because some of the groups I’ve been involved with in the past say they offer good picks and so forth, but they offer no real way to undergo they made that pick or how they made that pick. Thanks!
Hi Travis Pernell, it's very difficult to grow a small account. Most people lose money because they want to double and triple their money in a short time.
I explain everything in more detail in THESE videos:
1.) th-cam.com/video/Jx5wZy-xrhs/w-d-xo.html
2.) th-cam.com/video/tmtrWfyxVOw/w-d-xo.html
Does this help?
What trading platform form are you using
Hi! I am using the PowerX Optimizer. Are you interested to learn more?
Ok
thanks Markus
Hi Ali, you're welcome. Thanks for watching. "See you" in the next video 👍
Hello Mark, please tell us a million dollar strategy
Time, math.
Example
Marcus in the min 28 you made a mistake : SELL 230 and buy 240 is the correct way... but you said buy 230 and sell 240 which is OTM debit spread . im sure it was unintentional mistake. Great info by the way, and all very well explained , Thank You
who's right
Yes, at 28:00 I said it correctly: SELL 230 and BUY 240, and at 28:12, when I'm showing it on the chart, I say it the other way around, which is a mistake.
SELL 230 and BUY 240 is correct.
Thanks for letting me know. 👍
For the credit spreads, what has to happen to loose the MAX RISK amount?
I am kind of newby on credit spreads, getting frustrated with difficulties getting filled, and getting confused on P/L of them. and max lost. If you are loosing in the money big time and you get out with market order, can you loose more than max risk?
Credit Spreads are dangerous if you don't close them before expiration! if you close them before expiration, then it's very likely that you lose less than the max risk. But market orders are DANGEROUS, too, because you could get a fill at an unfair price.
PLEASE only trade credit spreads if you fully understand the risks!
Yip
Hi Trevor Shackleton, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
Can you do a video of how to read charts and set them up I use my phone so it’s a little tough but I have think or swim I just need to get my log in info but I want to do debit spreads I just need to learn charts
I actually trade on robinhood but the Mobil charts are no good
Hi Markus, I enjoyed your video but I have a query to clarify. You mentioned credit spreads have a low reward to risk ratio. For example, if one makes a 0.10 credit on a dollar spread per unit share and the trade is say 30 delta , the expected value will be negative in the long run. How does that make sense to trade credit spreads in the first place given such poor odds ?
I personally prefer trading "The Wheel Strategy". That's when you SELL options. For me, that's much more profitable. Here's how this strategy works: th-cam.com/video/nBmPCet8fzM/w-d-xo.html
Does this help? 👍
Markus, the debit spread has a lower probability then the credit spread so the power x software gives you enough of an edge to make up the difference?
The problem with CREDIT spreads is the extremely low risk/reward ratio: As I explained in the video, it's not unusual to have a 10:1 risk/reward ration, i.e. your risk is 10 times higher than the potential reward.
And with DEBIT spreads, the risk reward ration is usually 1:2 or better, i.e. you make twice as much money as you risk. Therefore you only need a 50% winning percentage.
So YES, it makes sense to use PowerX Optimizer to find the stocks/options you want to trade with Debit Spreads.
Markus you should compare POPs, they are very different in your examples. The debit spreads were 30 & 40% credits were 90% so it's not a fair comparison...
Mark, Sharing your data on the spreadsheet for the 38 out of 40 trades you plan to take is very revealing. So far with 38 trades taken, your win rate is too low to make money and this confirms why trading is a losing proposition. Even though I do not know the details of your trading plan (entry and exit and trade management), you are providing proof that using typical indicators and systems taught by most gurus do not work. With that said, every trader should be warned that indicators are always correct when you look at past data and using the same indicators to predict the future is a losing game. Anyone who has traded enough should know that. The traders who make money (only 2-5 percent) are real pros who know how to trade news and at institutional level, they create news to make money. So this trading game is a scam that no one want to share with the public. We are being fooled by the industry at this sum zero game. For money made by pros, the same money is lost by the small traders. Sad but true.
Well.... the spreadsheet is only for the month of June. In April and beginning of May, I took a $25,000 to $45,000. The videos with my life trades are here on my TH-cam channel.
Then I made $6,000 on a $20,000 account in 1 week in May.
So there's a very specifi reason why I am showing my performance in June: I don't want anybody to think that trading is easy!
There will be months when trading is easier, like in April and May, and there will be months when trading is more challenging, like in June.
Based on the results that I have shown here on TH-cam, and the results that my students are achieving (see the comments), I disagree with your statement that "trading is a losing proposition."
And also: I'm not a guru 😛
@@rockwelltradingservices Excellent results for April and May because the overall market rebounded big after the big drop at the end of February. However, under normal condition like in June, it is harder to make money with spreads and your data show it. Big pros 90 percent of the time trade only buy Calls or Puts and they are the only one that make it big because they have inside information or better research as they call it. This is reality and that is why the JPM and GS make money at their desks everyday!
Well.. the data that you see in the video is based on ONLY buying calls and puts. That's what I have been doing in June, exactly like the "Big Pros" - as you say. 😉
I'm planning to start trading spreads effective TOMORROW and will show the results at the end of the month.
And NO, the "big guys" don't "make it big" because of better research. Check the results of traders at JPM and GS for June, and you will see that their results are very similar to mine.
In fact, if you look at BRK, a.k.a Warren Buffet, you will see that his stock was down 4.5% in June.
JPM is down 5% in June.
GS is down 2% in June.
The "big guys" are NOT "making it big" - as you say,
The facts don't lie 😀
@@rockwelltradingservices thanks for your reply and let's agree to disagree. JPM and GS make news through their Upgrades and downgrades and that is how they have an edge. So JPM and GS will always make money over you and me. Let's agree to disagree. All the knowledge shared to the small traders are for them to lose money. You should know by now most of the gurus are teaching nothing new and selling services to make money. If they can consistently make money trading , then they would use their time trading instead of teaching and colleecting money. That is a fact.
"What you believe to be true is true for you."
Good luck! 😀👍
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