HomeОбразованиеRelated VideosMore From: Sky View Trading

The Right Way To Buy Options - Long Vertical Spread

7225 ratings | 384740 views
www.SkyViewTrading.com Most traders start out buying options because it’s the simplest option strategy to understand. If you think a stock will go up, you’d buy a call. If you think the stock will go down, you’d buy a put. Well this is NOT a very good trading strategy because you’ll lose money every single day due to time decay. No smart investor is going to buy a depreciating asset and call it an investment. Watch this video to learn a better way to buy options to make a directional bet on a stock but WITHOUT time decay hurting you. We’re going to show you how to trade the Long Vertical Spread to accomplish this. Also, make sure to sign up for our FREE 3 Video Lesson Series at www.skyviewtrading.com! Adam Thomas Sky View Trading what are options how to trade options how to buy options option pricing options explanation stock options option strategies Vertical Spread Option Strategy Vertical Spread Iron Condor Bull Call Spread How To Trade a Vertical Spread option trading basics option time decay
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Text Comments (423)
anthony rodriguez (2 hours ago)
Don't you need collateral to sell options?
Amr Ali Tarek (12 hours ago)
This is great with impressive 🔑Knowledge on Options.
Glenn Williams (13 hours ago)
If you are not sure which way the stock will move can you do say a for a long put and sell short call
Josh Sanchez (4 days ago)
Good video. What if you buy a long term deep ITM call and then sell say the near term weekly call options at and ATM or OTM. Basically using it more like a covered call. Do you have a video on this type. Would like to the know the pros and cons on this. thank you
Pavel Dyachenko (6 days ago)
Pda
Chris Gionas (6 days ago)
Hey! I thought you might find the following interesting: When I first tried to learn options two years ago this was the first video I found. I must be honest in that while the info you provide is great, the idea of capping your gains by a spread seemed too conservative for me. Fast forward to today- I now have been profitable every year I've traded options and have a very firm grasp of them. I no longer think spreads are lame, but instead...there is an optimal time for them. For example, on a stock like $SHOP that has been known to carry lots of momentum and make erratic runups and crashes, long options (not spreads) are a great plan, especially during times of low volatility. Right now for example, when the VIX is at 20 and premium is expensive, Buying bear put spreads or bear calls is saving my butt! I also Love the fact that if you buy a Bull Call spread and the price goes down on you, you can buy out of your short call, bank that premium and wait until your long call regains value again and now make gains without a ceiling (pending the expiry you chose). Thanks for making a few of these videos free and available- they've had a tremendous impact on this important part of my life!
Brian laqra (21 hours ago)
A lot of trading wisdom in your post, but can you please elaborate on "Right now for example, when the VIX is at 20 and premium is expensive, Buying bear put spreads or bear calls is saving my butt!", as for buying out a short call when price goes down on bull call spread , i did not know you can do that. Thanks.
D H (10 days ago)
Clearest video ever
Dave Thomson (11 days ago)
One statement is false "Any smart investor is not going to buy a depreciating asset". Commercial Real Estate. That's exactly how those guys get rich. Depreciation offers tax savings. Not in the case with Options but the statement isn't 100% accurate. Other than that I love all your training videos.
nelson1111 (11 days ago)
This is great...IF you can sell naked calls and puts. Otherwise you have to sell covered calls and that defeats the purpose almost. And-what you are really not taking into account is only an idiot would hold that 70c until expiration hoping for 77.50. Most people are wanting XYZ to go up enough to get that 70c to increase in value about 25/35%. And if you don’t buy that 70c 45 days or more out of expiration, and you think XYZ is really going up, Theta isn’t a big concern.
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Gina Smith (13 days ago)
wow so you trade with Mr George also? never knew his becoming famous his really master trader keep the good works sir.
paulpierce9191 (13 days ago)
For vertical spread are we assuming that we have $250 worth of call options to sell? I don't understand
ved s (15 days ago)
This is the most crisp and clear cut explanation I have ever seen on the option trading. For the beginners this video is a gem. Keep rocking.
Arjun Kiraad (15 days ago)
Amazing
Demi God (20 days ago)
CLEAREST DESCRIPTION
BavarianRev (22 days ago)
I thought the ones out of the money are worthless... then how is the short call worth 250? I’m lost haha
Eve Clear (22 days ago)
because it is worthless,that s why.You received the premium from selling the option
JoeyTV (25 days ago)
I understand this however wouldn't the vertical spread be less effective due to Theta (time deterioration)? Does this video account for theta? Just wondering thanks
Linda Alvarez (26 days ago)
Can you please tell me where the $70 Strike price plays into this transaction? So, your buying a Call that's ITM, since the strike price is $75 & it's already at $75, so the only factors that seem to determine whether or not you'll make any money, are the price you paid & whether or not the stock prices rises enough to cover your cost & allow for a profit. So, again, what is the meaning and significance of the strike price in this example? Help! somebody, anybody! Also, why outlay $750 when in the example above, it seems you could buy an ITM option for $500?? And at what point would you make money in that case? I am so confused...
Dr.Vishal Putti (27 days ago)
And is this applicable to index options of ce and pe
Dr.Vishal Putti (27 days ago)
What if da stock price goes <70$.
Larry Jones (1 month ago)
Great Job explaining vertical spread options my friend. I greatly appreciate it.
alex jones (1 month ago)
But if the option expires worthless you cant make a profit. so at 3:13 Youre actual profit is only $200 because the Short $80 call expires worthless.
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Phil LeBeau (1 month ago)
Control Click is the "Right Click" is it not?
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INFINITY CREATIVE (1 month ago)
The problem is how about if stock only go up to $81??? If stock go up only $81, how is your calculate????
INFINITY CREATIVE (1 month ago)
+Fernando Lener thks
Fernando Lener (1 month ago)
After 80, you will be capped to $ 500 profit. It doesn't matter if the stock price is 81, 100, 500 or 1000.
David Perez (1 month ago)
when using the vertical spread how long until expiration are the options that you're trading? is it typically 45-30 days?
Maxwell Johnson (1 month ago)
I typically do options with expirations at least 60 days away that way you pay for significantly less time decay
HALO INSTINCTS (1 month ago)
Awful explanation
Hitman 009 (1 month ago)
Confused, I am new, if current price is 75 why do you buy c Call option 70, should not you buying Put option of 70?
Stadia King (1 month ago)
This is wrong. (2:45) You loose the 250$ for the short 80 call.
topstar911 (1 month ago)
No, the short 80 call is OTM and thus worthless near or at expiration.
NzmAnh Dee (2 months ago)
What if you do Long long or short short??
NzmAnh Dee (2 months ago)
Is this 100% can anyone check.
Sachin (2 months ago)
You made it so simple to understand the complex stuff..thank you
Lance Orr (2 months ago)
Thanks for the video. Only thing is you have no mention of intrinsic and extrinsic value, but that would've complicated things.
Brian Bennon (2 months ago)
FREE-FREE-FREE. Everything for FREE! I was a member of RWO but with Doug putting everything out there on YouTube for free I cancelled my membership!! Thanks for saving me 2k a year. By the way there is nothing magical about Doug's trading. He buys support and sells resistance and waits until the stock moves up before buying.
Francis Lambert (2 months ago)
Honestly, how simple was this video on a very sensitive topic? It is easy to see people scared off from some of the videos I've seen. This video is informative-concise. I am not afraid (hahahaha..!). Peace :)
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frank brown (2 months ago)
So true
Dontlikenaimepas (2 months ago)
Scenario 4 happens lot more for me than the other ones
Josh Burda (2 months ago)
So with this method can you make money if the price does not change or dose the value of the stock have to go up.
Alex (2 months ago)
Josh Burda It needs to go up. He goes over this potential scenario at 3:40 (the stock is at $75 at the end, which is what it was at when you first bought the spread). You wouldn’t make any money but you wouldn’t lose any money either. There are other options strategies for when you want to profit off of the price not changing much like the iron condor or the iron butterfly, and I’m sure there’s others too that I just haven’t learned about yet. There’s even ways to make these spreads slightly more bullish or bearish by changing one of the legs so it’s not an equal distance away from the trading price but that’s getting a bit more involved.
Jim Gatti (2 months ago)
NEVER buy premium. Only during end of bear markets like end December 2018
Greg Martin (3 months ago)
Damn, so clear !!!! Many Thanks !
fugi1973 (3 months ago)
Can you do a tutorial on TOS mobile app about vertical put spreads?
Caren Liu (3 months ago)
what's your trading platform shown in this video?
Manimaran Krishnan (3 months ago)
Crystal clear explanation👍👍👍👍
Ireen Letuli (3 months ago)
I understand buying the $70 but how do you sell the strike 80 (01:50) if you don’t have it?..
Oscar R (3 months ago)
You dont need to have it to sell it. Review short selling.
Ernie CS (3 months ago)
Another question if someone doesn't mind answering... If he bought the 70 strike, does he keep everything above 70 if time expires on contract? Even the .50 that is already there?
Ernie CS (3 months ago)
This is where I am always confused. You said to sell the 85 strike. However, won't I have to buy it before I can sell it? So, I am basically buying strike 75 and 85. Is that correct?
Yitzchok Ruttner (3 months ago)
It’s very clear but I don’t know what is a short call and how do you make a call at $70 when the current price is $75
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Hokie200proof (3 months ago)
What happens if whoever bought your 80 call executes it as soon as it's ITM? You'd need sell them 100 shares of the stock, right?
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Emily Bjorklund (3 months ago)
This is great, keep posting videos. You explain very clearly and love all the different strategies.
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张梓径 (3 months ago)
Out of money then you gain 250$?
Honk Honk (3 months ago)
Why would you buy an itm call in the first place. No to mention 5 dollars under.
Jiansen Zheng (4 months ago)
Cool. I like it!
Spencer Mayaleh (4 months ago)
What happens if the the buyer of your short wants to exercise his option? Pleas if anyone knows that would be great
boss hog (4 months ago)
Watched twice. Nice job. 🤙🏻
Marcus Riddick (4 months ago)
Is there a way to simulate this out come in a Level II account in thinkorswim? Im new to options and do not have approval yet for my account to do spreads....
R T (4 months ago)
you must specify that the calls were negotiated at 75, otherwise this vid is unnecessarily confusing for a simple concept. In fact you seemed to have bought the long call 5 dollars in the money. But it is my understanding that most pro traders buy calls and puts slightly out of the money for short term trades.
R T (4 months ago)
you left out that smart traders buy calls close to in the money, they do not swing for the fences and they only trade them short term so your first example in the vid is not a good one imo
Justin Corlett (4 months ago)
Love the channel. Can you explain how at 50$, the option is still out of them money for the short 80 call? Because it is short 80, Im having a hard time understanding that.
Chenxing Liu (4 months ago)
The think or swim part is very helpful. Thanks!
Paul Spelt (4 months ago)
Thanks this really cleared this up for me! Subscribed. I guess the bearish inverse of these examples would be buying a put at 80 (ITM) and selling a put at something like 65 (OTM) right? Also, do you let the options expire in this case? Thanks!
Richard Servello (4 months ago)
What if someone exercises the naked call early???
binary iqoption (4 months ago)
helllo xxxxx
GunP01nT510 (4 months ago)
I’ve been trading for a while but my first trade f*cked me. I made new rules for vertical spreads and they’ve been working fantastically! https://www.reddit.com/r/options/comments/a8ljfj/my_googl_995_put_spread_expired_atm_and_now_i/?st=JPZLWFBT&sh=07aeecd3
sha p (5 months ago)
Thank you so much , what trading platform are you using ???
Ben (5 months ago)
But markets are effecient, so where does your edge come from? Sure there is time decay when selling options to "profit" from, but it doesn't always go your way and often the option buyer wins.
Dung Ho (5 months ago)
I still don't get. How you get that 500 dollar or that 200 dollar from?
Ned K (5 months ago)
How does the $250 at the start count against the $750, did you own options previously? Presumably the guarantee would still be required by the exchange, would they really let someone make a larger trade for less capital this way?
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Hernando Hoyos (6 months ago)
On the first call at 70 example, i dont understand why the breakeven is 77.50. Is this just the cost of stock + premium? Did he mention the premium anywhere, sorry a little confused. Thanks in advance. Great video.
jeremy339 (6 months ago)
So how do you exit this trade prior to expiration?
Daniel Ceballos (6 months ago)
Why does the short call have to expire worthless
MisterAwesome24 (6 months ago)
The $85 strike contract confuses me. Do you already have to have that contract in order to sell it? How are you getting $250 for free and deducting it from your long call?
MisterAwesome24 (6 months ago)
So I have to write my own calls?
Patrick Adams (6 months ago)
Your examples do not take into account volatility movement, where IV is at the time you put on the trade or what scenarios are acceptable for placing a vertical spread. When "buying" a vertical spread (call or put). Theta does play a role in the profit of the spread. If the price moves too rapidly, it will have to travel much more than your examples to realize maximum profit. you should show how to calculate probability of profit as well as how to calculate the spread profit over time. here is a link you can share that shows this. http://www.optionsprofitcalculator.com/ . Also, explain how many times do you buy vertical spreads and realize maximum profit because it is less than 50% of the time. One last thing is you should explain "Liquidity" in the underlying being purchased and the importance of trading liquid products. Don't get me wrong. I like your examples and trading verticals is my bread and butter, but you need to explain the entire trade so people do not go out and use your examples without knowing the whole story because they will lose money. You NEED to do a follow up video and explain this strategy completely.
1Esteband (10 days ago)
I usually use Thinkorswim but this calculator makes it soo simple. Thank you!
keithskillz90210 (1 month ago)
Patrick, I'm intrigued by your portrayal of knowledge/experience. Any way that you can make a video, or a powerpoint or something?
ncs2000 (6 months ago)
I am confused about scenario one, paid $500, but only regain $450, isn't that a lost?
bryan duffy (7 months ago)
If your buy call is at 80 and the stock goes above 80 doesn't your option pay u at 80 and u miss the money above 80?
Ray Lee (7 months ago)
Really easy to understand vertical spreads laid out like this, thanks! I do have one question, I currently use E-trade Pro and when I place an order for a spread, I'm given 4 "price types" - Market, Even, Net Debit and Net Credit. What are the differences?
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giffy 7 (7 months ago)
Jesus this video just flipped my world upside down lol been buying single options but after watching this is just doesn't make sense not to buy the vertical. I usually buy LEAPS but when looking at the delta of a LEAPS vertical for like two years the delta is extremely low compared to shorter expirations times. Should I change my strategy to shorter time frames like a couple months to gain profits faster if my direction is right or keep the long term LEAPS for the time benefit, not really sure..
Makaveli (7 months ago)
Very confusing explanation.
HD كاس العالم (7 months ago)
Was this a debit spread in the example used in the vid?
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James Kuykendall (7 months ago)
Yes a call debit spread
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Kurtis Thornton (8 months ago)
how can you get level 3 trading ? to do spreads
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Taylor Jones (8 months ago)
As someone who has done both, I would definitely recommend using vertical spreads as opposed to simply buying naked (single) options. The limited profitability is much worth the trade off for the amount of risk you incur. Spreads are more affordable, offer more flexible break-even points, and your P/L is much less volatile. If you continue to only buy single options, even if you are right in the long-term, you most likely will be stopped out and/or find it very difficult (and most of the time unwise) to hold a position that could easily lose 50% value overnight. Buy Spreads!
William Lusher (7 months ago)
Does your short call need to be covered? As a beginner, I would be nervous about it getting exercised and not having the stock.
Patrick Hughes (8 months ago)
Super noob question but....when do you sell these?
Piyush Chauhan (8 months ago)
For example if I buy put strike price of 70 in your vedio and it is available at 30 rs means I have to pay 3000 rs and the put option of 65 is 15 rs but current price of Stoke goes to 75 to 70 then the price of 65 increase from 15 to 20 and if I would have bought 65 strike price at the rate of 15 then when current price moves can I sell the 65 strike price to other buyer at 20 rs which I initially bought at 15 making profit of 5 rs ??
Piyush Chauhan (8 months ago)
Liked your work , I have a question that example if I buy a naked option of call at 50 Rs and after some time it increases to 55 rs can I sell it other buyer ?and profit from difference?
Adwoa Baidoo (8 months ago)
I use robinhood to do my trading as a beginner and i don't think they have the option to do vertical trading like you showed here, do have any recommendation on how to do this using platforms like robinhood?
Kc F (8 months ago)
How are you selling a buy option for a stock at one strike price unless you own one at that same strike price?
nsolcis (8 months ago)
Great vid man
Kebaya (8 months ago)
I wanna learn this..amazing
Madeline Yau (8 months ago)
So here is an example if WSM stocks today is at $68.19 and i want to do a vertical trade of $2.00 increase in the time of expiration if I’m right I make money? If it decreases by $2.00 I lost money? So with options I’m biding if the stock will increases or decrease? Sorry if I’m confusing at explaining my thought process trying to learn this.
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Rahgir Nabi (8 months ago)
Great video! Can you close your position early on the sell? What if the buyer wants to exercise the options they bought and it’s in the money? Thanks!
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