How to Trade Credit Spreads l Best Strategy & Tips l Options Traders Must Watch!
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Join Tony Zhang, Chief Strategist of OptionsPlay & CNBC Contributor of Options Action as we discuss the optimal credit spread and how to find the trades that put the edge in your favor using OptionsPlay!
Slides: www.dropbox.com/s/nx4orx5g95b...
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#howtotradecreditspreads #creditspreads #trading
I don’t know how but you’ve managed to package an unbiased analysis. Stocks have stayed aloft as signs of cooler inflation I believe the Fed is finally done with raising rates, that means “Santa has come early” to the markets. What are the best additions to a $500K portfolio to boost performance?
I recommend you seek the guidance of a financial advisor, Who will advise you buy stocks to purchase.
Yes true, I have been in touch with a financial advisor. With an initial starting reserve of $80,000, my advisor chooses the entry and exit commands for my portfolio, which has grown to approximately $550,000.
I’m intrigued by your progress. Could you share some insights into your trading strategy or perhaps recommend any specific resources or mentors that have led to your success.
She goes by ‘’Vivian Jean Wilhelm’ I suggest you look her up. To be honest, I almost didn't buy the idea of letting someone handle growing my finance, but so glad I did.
Thank you! I entered her full name into my browser, and her website came out on top. I filled her form and i hope she gets back to me soon.
After a terrible 2022, shell-shocked financial backers have a lot to think about and losses to recover from. An expansion report and a wealth of other data did little to alter assumptions that the Central bank would likely keep raising interest rates regardless of whether the economy slows down. This implies that portfolios will experience more losses during the first quarter of 2023. I'm currently at a crossroads deciding whether to exchange my $250k security/stock portfolio; how might the continuous market volatility work to my advantage?
Concentrate on two main objectives. First and foremost, keep yourself safe by knowing when to sell stocks to reduce losses and maximize gains. Second, prepare yourself to gain from a market turnaround. I advise you to seek the advice of a representative or financial counselor
ever since Coronavirus, I've been in regular communication with financial examiners. Nowadays, buying moving stocks is quite easy; the trick is knowing when to buy and when to sell. The section and leave orders for my portfolio are made by my counsel. accumulated more than $550,000 from $150,000 in savings that were initially stale.
Please provide the information for your investment advisor here. I really need it now.
She is *Margaret Ann Warnken* , my consultant. Since then, she has devoted section and left attention to safeguards that I have been keeping an eye out for. You can locate information about the chief online, on the off chance that you're interested. I made no regrets about substantially adhering to their exchange strategy.
sincerely thank you I looked her up on the internet and was awestruck by how qualified she was; I contacted her since I need all the help I can get with canning. I've just scheduled a call.
I admire the financial independence of people, But you can live better if you work a little more. After watching this I think there are people out there, on the extreme, who plan to die early just to be able to retire early. To each their own but to me, retirement isn't just about not having to work, it's about having the freedom to do whatever you might reasonably want, such as travel, buying things, enjoying life, etc. I don't think I could retire with less than $3m in income-generating investments, maybe $2m at the very minimum. I plan to work until I'm at least 45
Nobody knows anything, you need to create your own process, manage risk and stick to the plan, through thick or thin while also continuously learning from mistakes and improving
@@MarcusFred-wn3iv Having an investment adviser is the best way to go about the market right now, especially for near-retirees, I've been in touch with a coach for a while now mostly cause I lack the depth knowledge and mental fortitude to deal with these recurring market conditions, I netted over $220K during this dip, that made it clear there's more to the market that we avg joes don't know
@@harrisonjamie794
Who’s the person guiding you
@@MarcusFred-wn3iv credits to *MARTHA ALONSO HARA*, one of the best portfolio managers out there. she's well known, you should look her up
@@harrisonjamie794 Thank you, I just checked her out and I have sent her an email. I hope she gets back to me soon.
Man you were made for teaching. You are so concise and thorough yet make it so easy for me to understand. I have a question and really hope you get a chance to respond. What factors come in to play when deciding the moving average time frame? When are 20 day moving averages used versus a 200 or 5 day or even a 5 minute MA etc? Thanks again for all you do!
I have been picking up nickels in front of a steam roller (or pennies in front of a freight train as Tony said). I was selling credit spreads that had 80% probability of being OTM. Watched this video and wasn't sure the strategy would fit my style. Then thought about it and watched the video again 😄 I entered three trades with this strategy today. Thanks for sharing great strategies Tony! 👍
The steam roller always gets you eventually :)
This is something I was looking for. Great content. More technical details. I've traded credit spreads, however, I always have second thoughts on how to select strike price, expiration date, width of two strike prices.
Agree 💯
Tony, Love the content! Keep them coming. Thank you!
Thanks Steve!
Thank you Tony again for another helpful video. I am building my preparation to subscribe to Options Play.
Glad you enjoyed Ramiro! Let us know if you need any assistance.
Very precise teaching. Thank you for sharing.
Tony you explains things in a way that helps me understand thank you
Thanks so much for watching! I am glad to hear that
Refreshing to see a Master of his craft also a master in teaching. Thanks for this really great class.
Nice webinar. what do u think about a Tiblio? Could I use credits in daytrading?
Thank you, Tony for this wonderful webinar. Much appreciated.
Thanks for watching!
Thanks for the video, Tony. I used to do such trades on AMZN, NFLX, FB etc. Sell ATM Put and buy OTM next strike put. The two mistakes I did were choosing current week as expiry and not closing with 50% profit. I did make some money but lost all. Now, I don't trade credit spreads. May be follow your guidelines/rules and try again. Also, an important factor is that we need to have enough money in the account to cover the margin (risk) requirement.
Did you ever trade credit spreads in the method ? And how did it go ?
Great video thank you!
Thanks for watching Eduardo!
Thanks so much! do you have any videos for Canadians who have a small account and want to Sell Credit Spreads and Run a Wheel Strategy?
Thank you so much Tony, you are so kind!
You are very welcome!
What an explanation🔥, keep it up🙌
Great content. Expected more video like this
Glad you liked it!
Awesome job today explaining on this strategy I am looking forward to sign up for your monthly package.
Thanks Freddy really appreciate that. We bring as much value as we can. If you need anything just reach out!
@@OptionsPlay Ed sawf
Tony, I have enjoyed this webinar. Thank you for making this.
That's an insightful strategy that you have covered there! The same strategy that I have covered in detail utilizes a short strike of 0.25 to 0.2 delta instead, for a higher probability of winning. Also my DTE and exit strategies are different. Glad you have covered some aspects of the exit strategy as well (exit strategies are often ignored by most...).
I will be testing these variances (in DTE - entry & exit, strikes, etc), hope to find and deliver the results one day =)
His overall look and approach is built more for large accounts, for smaller accounts you will tend to really want to stick to like you said around .25 to .20 delta and you would seek to collect less then 33% of width because the focus is growth and collecting profits equal growth even if its small just do it more often and it adds up.
Very nice. Solid selection and exit criteria. Although the questions at the end were awful, they made you do the seminar again. You have amazing patience, I would have broken a bottle ony head.
Thanks for your work.
Great video Tony...very clear Answers to your questions: 2,3,45 :) Signed up
Thanks Greg!
Good presentation, but i have hard time getting the credit spread orders executed with the premium price in the spreadsheet, even though i have the most one during the hour today, i tried to enter a few different stocks also. Can you address what we should do in that situation?
Tony, what indicator do you use to get the overbought oversold level? Thank you for your time.
Hi Tony, thank you for the great video. I am unable to locate the bottom black bar to check out the credit spread report. I am on a free trial now, is that the reason for being unable to see the credit spread report?
Appreciate you mentioning what most do not. Selling at S&R and overbought/sold conditions. Not sure why that is not mentioned but completely useful detail in a market turbulent like now.
Happy to be of assistance!
Very nice job!
Thank you!
Hello. I just foUnd your video and I really like the idea of using credit spreads. I have always seen others talk about selling credit spreads OTM. I had NO idea that you could sell ATM. But isn't that a little bit more risky selling ATM?
credit spreads is also my favorite strategy.
Thank you.
Thanks for watching!
Your the best. Thanks
Thank you!
One question on slide that shows IBB credit spread example. My question is on the example sell put $142 @5.10 buy put $136 @ 2.95. I have never did credit spread before so my question is after selling and buying puts like in the example on IBB. do we hold them until they expire to realize profit or do we have to do something else before option expires
This is an excellent, world class video. I love that you opt out if you gain 1/2 premium. I do that also.and the prem/width is our genius. thanks for a great video
I love your videos, Tony. They've given me the inspiration to try options for the first time.
One thing though. I don't follow US or any stocks, so am limited to crypto, namely Bitcoin and Ethereum.
Since these two coins are the only two with significant volume to justify trading with options, in what way could I potentially set up a 'portfolio' of different trades.
I see these are 45 days, so I'd take two trades, one of each BTC & ETH, but what else can I add?
Should I be considering covered calls/puts also?
What would you recommend?
I like options score I'm going to use it for my first ever options trade, if been doing alot of practice trades and I'm making a profit so I want to jump in
Hi Tony. Thank you for your sharing. However, I am confused that what indicators you often use for this stratergy_ Credit Spreads.? Thank you in advance.
Great video
Do you put a stop in ? Thanks
Yes I do!
Thank you so much for the amazing webinar
Thanks for watching!
Today I am starting to open all your positions recommended in the Credit Spread Report? I will be using paper money in TOS. I already watched the video about COC orders, very useful, thank you for making it.
I am only trading one of each one, because I have noticed you never mention in the videos how much to risk per trade. It would be nice to know how much a yearly return we can expect selling credit spreads.
could u made a webinar about crypto options?
Awesome video
Glad you enjoyed it
Tony, Where do you set your stop losses when you collect more than 50% of the credit Spread? Thx great vid!
You shouldn't be collecting anywhere near 50% of the width on a credit spread. If you are, then you're selling ITM options which isn't a great idea, because ITM options have very little extrinsic value. You turn it into a potentially long theta trade, not short theta.
@@OptionsPlay Thanks for the great content!! I was looking at your last friday's "Credit Spread Trades" spreadsheet, it showed EFA(I think) was greater than 50% credit. I guess it was just the wide bid/ask spreads and the short strike price being very close to the market price that made it appear larger than a 50% credit. So the moral of the story is, if you can get filled (probably, but unlikely on wide bid/ask spread) that is OTM with a credit of greater than 50% of the width, you have commited to a great theoretical trade? would you ride that trade out to expiry or cash it out sooner?
I am new to this. How do you close out the position?
good videos i watch this video with play speed 2
Glad to hear it
Amazing content. Thank you! One question: you said that risk to reward is 2:1, and hence you need 67% winners. But then you said that rule is to get out at 50% of maximum profit. Would that not decrease the reward to half of what it could be, and significantly alter the risk reward ratio?
Great video. I’ve set OCO’s on my CS before. My issue with this has been when one of the legs jumps for a quick millisecond (the stock doesn’t move) and triggers the stop loss. I see the sale that is a loss, yet the stock hasn’t moved anywhere near break even or the short strike. I’ve asked TDA and their comment is that they can’t control when one leg jumps for a second and triggers my stop loss. Several people I’ve talked to say they don’t place mechanical stops for that specific reason. Instead they place alerts for when the stock reaches a certain point, say B/E, and then they look to manage the trade manually. What’s your thought?
Thanks~~~~~~
Use wider stop losses only to protect you but use price alerts at your sell point
@@frostedlambs Because of the above, I did institute price alerts to trigger when and if the stock price came close to the short strike price.
@@markschellhammer4663 and really most people who trade credit spreads trade them with no intention to manually maintain the trade because to start with they are defined risk and have such a high probability of profit, so even when the stock price goes near the short strike, a lot of times it will move back away again ultimately to end up worthless.
that's not to say you shouldn't have a profit target or a time stop or even a stop loss in mind that will trigger you to exit the trade, i just don't think it necessary to set automatic mechanical stops for CS.
@@sarahserio4303 But many people want a “set it and forget it” kind of trade. Set an OCO order with a sell limit and a stop loss order. If the spread’s income reaches your desired level, say 50%, then it closes with a profit. If it reaches your desired stop loss level (1x, 2x, 3x?) then it automatically closes. I would do this myself more often if I it weren’t for the market maker spikes that hit for a brief second to trigger all the stop losses and then return to the going price. That sucks.
Let me ask you this, what if the only available options are 30 day or 60? Sometimes 45(ish) is not available, would you go shorter dated, or longer, or not at all? Edited, if you went a bit shorter, or a bit longer, would you still follow the same rules of 1/3rd of width and 25/50 deltas? Thanks Tony.
In my opinion, the same rules apply whether you are trading 30 DTE or 60 DTE. As long as you continue trading in this time window, you will find that the average DTE for all your trades is right around 45 days.
just join the free trial and watch a couple of videos on TH-cam. I wonder if I create a watch list or my portfolio, can you website provide me with options information like "credit spread" candidates? I'd do credit spread if some stocks on my watch list or portfolio that are suitable, but may hesitate to do so if the stock I'm not familiar with. Let me know. Thanks.
Thanku sir
Hey Tony, thank you for your great videos. One warning you may want to convey on stops regarding options is that the bid/ask might get blown out, immediately reaching the stop loss. This just happened to me today on BP. My spread was in the green and stock was continuing upwards. Somehow the bids got dropped on my short leg and my stop-loss filled for nearly twice the current bid/ask. Learned my lesson to not use stops on options...
did u do a STOP or a STOP LIMIT? Just curious. Want to learn from ur experience.Thank you
Tony Tony Tony ! Thank you sir
Thanks for watching!
Tony, do you have a video to teach how to trade SPX 0DTE ? Is a good idea to trade Credit Spread of SPX 0DTE? and why and why not? Thank you again.
Right off the bat, there are errors in the Bullish Trade on IBB slide. The Net Credit is $215, not $2.25. The Spread collects 35%, not 37.5%, of the Vertical Width. The Max Reward is $215, not $2.25. The Max Risk is $385, not $3.75. Profit occurs when IBB is at 139.85 and above, not at 139.75 and above.
Hi @tony Zhang, can you show how to do a TOS OCO type set up in Tastytrade?
hi tony this was a really great an educational video but can someone explain this to me - why cut losses at 100% max gain instead of just cutting losses at 50% of max loss? if you’re cutting losses at 100% max gain with an above 1/3 credit width, wouldn’t that 1:1.5 risk to reward ratio be inaccurate? assuming you’re consistently only taking profits at 50%.
Maybe you will find the answer here: th-cam.com/video/XBxDtcPu3PA/w-d-xo.html
This is why i don't believe this guys that said illogical stuffs and in the end they tried to sell me a membership
I’m confused bc I buy and let them increase the value like I sold my FB a profit of $9 & again sold the others 1 left did again sold is there any penalty by selling them early bc I’m still learning since I opened in November 2020.
Hi, what are your thoughts on selling deep OTM credit spreads, weekly, and exiting losing trades at 200% of the max gain? That would allow for only needing to be right 66% of the time to break even, and give some leeway for fluctuations when the stock price moves against you but still hasn't reached ATM value.
Hard to justify this approach in my opinion. If you go too far OTM, you will not be able to collect enough credit. Sure you may profit on these trades for a long time, but once the stock moves in a big way against you, then you may lose all your profits up to that point.
I do 70 to 75% profit and I am good.. sometimes I do even 60%.. I find out it's best to stay away from 90%
Thanks Tony for this interesting video. Why not make a credit Iron Condor? Wouldn't the iron condor balance the risk on both sides (if it goes up or down) and therefore require less margin ?
If you collect more credit on an iron condor, then the required collateral will be less. However, in my opinion, you should collect about the same amount of credit on an iron condor as you would on a single credit spread by itself. Therefore, the collateral on the iron condor will be identical to a single credit spread in this case.
Was this report added to option play Canada?!
Thanks for the video. However, I'm confused why it's necessary to exit with a loss of 100% of the max gain? In the video example, for the $10 wide credit spread for $4 profit, isn't the max loss 10-4 = 6? Why don't we wait till the expiration to take the loss of $6, which is smaller than $8?
In that example with $8 stop loss, you are only losing $4 since you received the $4 credit, less than the $6 in your example
Are the rules you stated for Credit Spreads acceptable for Iron Condors as well?
For iron condors, you will want to collect the same credit as you would collect on a single credit spread. So because an iron condor involves two credit spreads, you should pick your strikes even further away. That way, the combined credit between the call credit spread and put credit spread should be about equal to the credit you would collect when selling a single spread by itself...and you will also have roughly the same probability of profit for the iron condor too.
@@scottreesetradinginvesting7936 This mean you can select a lower Delta on the short legs and increase probabilities of profit? My broker ask margins only on one side of the Iron Condor. Is this a benefit?
The problem: I could be assigned on both sides!
So I would need to buy a married call and a married put if I would stay on trade after the expiration of long legs.
But I could also open a collar... even with a credit if I do it in the right moment.
After all. the options are flexibles !
It is trading, not a game.
36:45 "which WHOOPS! you know what symbol and whether WHOOPS!"😂 This was halarious
Would straddling credit spreads reduce further risk?
I loved the video, but there was one question that I had that was never answered. Why do you trade credit spreads with a negative risk/reward ratio instead of something on the positive side? I look forward to the answer, thank you!
And I understand what you said about how selling something far OTM would be different. I’m referring to keeping the same trade, selling ATM and changing the ratios for your profit target and stop loss. Thanks again!
credit Spread can make profit if stock stay current price that when open trade but debit not like that
@OptionsPlay: Thank you!
Not sure whether anyone has mentioned this but with your exit rules you essentially bring the risk reward back down to 2:1 which means that you would still have to win 67% of the time to break even. So it wouldn't matter whether your initial premium is 33% or 40% the spread width. The difference is win $2 or lose $4 vs. Win $1.67 or lose $3.33. Correct me if I'm wrong?
I wish he would address this!
Great Point, I caught that too and saw your comment when I was checking to see if anyone already pointed that out. WTH? Why brag about the 40% and how much difference that makes compared to 33%, then recommend wiping the advantage out while quietly avoiding pointing out how that contradicts one of your previously mentioned benefits? The answer to that question isn't going to be positive. Also, since when is a risk reward ratio of risking twice as much as you have to gain a wise trading objective? That's news to me. What does the APR end up being on this stragtegy.
He answers this question below and also in the Q&A section of the video beginning at 50:30
No doubt, he will claim that his exit rules increase the win rate enough to offset the drop in the reward/risk ratio.
There’s very little to zero open interest on a 45 expiration window. Would you still setup this trade?
Tony addresses that in another video on this channel.
Better to go to a different cycle with either close to 30 days or 60 days. Good liquidity is extremely important in trading. Otherwise, you risk losing a lot of money in the long-term with bad fill prices.
Hi. In your example stop loss should be 4$ for RR to be 2:1. Not 8$
How can I sign up?
Get our FULL Wheel Strategy Course. Learn how to generate recurring income each month 👇👇👇
www.optionsplay.com/wheelstrategy-youtube/
Why do you have to put our emails on a list so we get spammed. That stops me from pursuing your promotion.
@@bid_wacker Hi Carmine. Please email info@optionsplay.com with your concern so we can better assist you.
Thank you Tony!
The link doesn’t work
I think I managed to log-in to platform. Thanks for the experience..Have to slowly investigate this platform..Thanks again Tony..
I feel bad that what you were discussing was 9 months ago already. I would like to get started on your system. I just don't know how to get started.
Would you consider an approach with a 90% OTM and
Thanks~~~~~
Please help:
1st Trade
I’m sitting on Call Credit Spread. Not sure what to do next.
SPY $471/$472 Calls
$0.59
@ -63.89%.
Exp date 1/7/22
Stock is already at $471 now. Should I wait until it expires of Close credit spreads?
------
2nd Trade
I’m sitting on Put Credit Spread. Not sure what to do next.
BABA $115/$110 Puts
$0.94
@ +3.09%.
Exp date 12/31/21
Stock is already at $125.15 now. Should I wait until it expires of Close credit spreads?
Whenever I trade spreads, I never cut losses early. You have limited risk on the trade, so if you're already down by a lot, you only have little more left to lose but everything to potentially gain. Let the probabilities work for as long as possible.
@@scottreesetradinginvesting7936 hello Scott. Looking to talk with an experienced trader with Put credit spreads. Would you be kind enough to chat? Thanks.
Crazy as it sounds I was assigned stock for my put recently with 21 days left to exp.
Is it good idea buy first option then sell
You should always trade both legs at the same time, never break it apart into 2 trades.
@@OptionsPlay Tony, why is that? Can't i close the sold option, yet keep the bought option open?
Weekly or monthly ?
Monthly contracts are generally better than the Weekly contracts because of their superior liquidity. You'll typically find much higher Volume and Open Interest for the Monthly contracts...which means tighter Bid/Ask spreads and therefore much better fill prices when you trade them.
Is amc good?
For option selling strategies, yes. AMC typically has very high implied volatility which makes its options very expensive...and hence worth selling :)
Really great course !!! I'm new here, is there any video about how to choose the best strikes related to stock price and technical chart ? Thanks you!!
i look at option trading and compare it to forex it seems forex trading is simpler option trading has lot of moving factors to consider which takes long time and makes it difficult
Low Delta trades are dangerous, kinda like fool's gold. You can win 6 months in a row using low Delta set-ups and then 1 bad move can wipe out all 6 winners. Theta is never strong enough to overcome Gamma or Vega.
Tony, really good job illustrating why ATM set-up is actually safer. Thank you.
Could not agree more!
@@OptionsPlay Tony I just signed up for 30 day trial and will tell a friend to as well. I put on MU and JD put credit spreads from the screener. I put my own RBLX credit spread using your rules got 40% of width. I noticed in short puts you have RBLX as well. I chickened out and didn't pull the trigger on the 78 short put. I even had the 75 ready, I just didn't pull the trigger, lol. I need to learn your service more. I will look at your diagonal video tonight and review the short put video again. Btw, I think neutral trading, theta trades are a fallacy. Theta gets swallowed up by the slightest Gamma or vega. Flat is a direction though it's not advertised as such, lol. My instincts say I need some sort of directional bias. Thx for all the insights. I'm experienced and still am learning.
I used to do the bracket orders for take profit and stop loss. However …
I got my stops taken out, more than once, in the opening minute or two of the market. My short leg never even got close to being in the money. I’m trying to figure out something “safer” …
why 21 days to expiration trigger exit trade?
Because there is this thing called "gamma risk" which starts to become a problem within 21 days to expiration. It basically means the prices of your options will begin to become a lot more sensitive to changes in the stock price. So as a result, you'll see greater volatility in your account.
Tony, isn't your math off on your Net Credit? Shouldn't it be $2.15? and then all the other calculations would be different? Not sure what Im missing
Your 1:15 risk ratio seems misleading. Also, Tony, I would never trade short .50 delta on 45 DTE. Last, 21 days to expiration closure completely shuts down theta which is the main driver of profiting on credit spreads. I do not understand why you would want to do that. Theta accelerates faster the closer to the expiration. I know, gamma goes against it but most money I have made so far is letting options value decay as long as I can.
5
Wow wow
3
Question: Maybe I'm getting confused. If I'm exiting the spread at a profit at 50% max gain, am I not affecting my risk/reward ratio? Aren't I making it even worse? Or is risk also going down by 50%? So that the ratio is intact? Does that make sense?
Great question, no the ratio is intact when you take profits at 50% of max gain and then cut losses at 100% of max gain.
@@OptionsPlay Hey thank you for that. I apologize for the repeat question, I've just been watching too many of your videos lol and I couldn't figure out if I asked the question already. Thanks again, these videos are very insightful.
why exit at $8.00 debit /100% of the max gain when the defined strategy has max loss of $6 on expiration?
When you exit a $4 credit spread @ $8 debit, that is a loss of $4, out of the max $6. That's $2 less than the max risk.
@@OptionsPlay in your example with only $2 left to lose because it is a defined risk trade, would say the risk:reward at this point is actually favorable to keep the trade on especially when it is before 21 days to expiration? Pot odds is in your favor and you already managed your risk at order entry with a defined risk trade.
But will a person actually lose the whole $9.00 if such person places a stop loss at the strike price of the sell option.
👌
I just became a member and I dont see the option to select credit spreads
Vector vest teaches that on credit spreads you want the sell side delta to be less than 30
You are the queen
Hello Tony, Do you keep records of how these recommendations actually performed? I'm very interested in joining
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