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!
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what are options
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Vertical Spread Option Strategy
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How To Trade a Vertical Spread
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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
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!
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.
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.
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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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...
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.
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 :)
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.
This was great, thanks, I have been researching "how to trade in option" for a while now, and I think this has helped. Have you ever come across - "Gay fucking porn" - (do a google search ) ? Ive heard some unbelievable things about it and me and my buddy got great success with it.
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.
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!
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
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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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.
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.
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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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..
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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!
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 ??
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?
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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