Probability Selection for Long Verticals | Long Verticals & Diagonals | 5-2-24

Long Verticals & Diagonals | Ben Watson | 5-2-24
Characteristics and Risks of Standardized Options. bit.ly/2v9tH6D
In this class, we discuss the implications of Probability and directional sensitivity on Long Vertical Spreads. We look at probability tools on the Analyze and Trade tabs, and learn about the relationship of Delta to Probability of Touching. Finally we place an example trade and close another example on the thinkorswim Desktop paperMoney Platform.
Some stocks are expensive and even their options are costly! Join your education coach to discover an option strategy that allows you to consider options with those expensive underlying stocks with relative low amounts of capital. Learn the risks and how to trade and manage long vertical and diagonal spreads.
1023-34RR
Options carry a high level of risk and are not suitable for all investors. Certain requirements must be met to trade options through Schwab. Please read the Options Disclosure Document titled "Characteristics and Risks of Standardized Options" before considering any option transaction.
Scripts are for educational purposes only, are not a recommendation, and are not guaranteed for time or accuracy.
Long Vertical Grid: tos.mx/!YxQRWsqG
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[@HarryLewinASR]

Great class. Question: If one sells a short vertical put spread with strikes far below the market price, the legs are deep out of the money. But is the spread said to be deep OTM or deep ITM. Since the value of the spread moves in the opposite direction from its legs either description logically fits, but what is the agreed upon convention?

[@tradertalkswebcasts]

Thanks for watching. The reference to ITM or OTM when talking about options comes from Intrinsic Value, which is simply the mathematical difference between strike and stock price. An option with intrinsic value is said to be ITM. Likewise a spread where both legs are OTM would be an OTM spread. So, in your example, a short put vertical with both legs below the stock price would be an OTM SPV. As long as the spread stays below the stock price, the spread would remain OTM. The value of the spread doesn't determine OTM or ITM, simply the relationship of strike to stock price. I hope that helps. ^BW