The Short Vertical Spread (aka Vertical Credit Spread) is the most basic options trading spread. A Short Vertical Call Spread is a bearish/neutral strategy that consists of a Short Call and a Long Call… And a Vertical Put Spread is a bullish/neutral strategy that consists of a Short Put and Long Put.
Use this option spreads strategy to sell option time premium with very little risk and capital. Quit letting time decay ruin your trades and start letting it work in your favor. You can trade this strategy with an account size of just 2k while allocating very little capital to each trade.
Watch this video to fully understand how this strategy works and how to trade it.
Also, make sure to sign up for our FREE 3 Video Lesson Series at www.skyviewtrading.com!
Sky View Trading
option spreads strategies
Vertical Spread Option Strategy
Vertical Credit Spread
How To Trade a Vertical Spread
option trading basics
option time decay
consistent options income
I'm a novice. I'd like to see a video in which it's taught how to set up an account, and how to test one trade without much risk. Even if I make $1, as long as I understand the concept, I'd be on the right track. This is a video for advanced traders.
This is not completely true. What this video talks about is trading an index which is cash adjusted. If when selling a call spread on a stock and the price of the stock closes at expiration inside your spread (above the sold strike and below your protection), you have sold the stock at that strike price. The option then converts to stock and you are short the stock at that strike price. The cash for the sold stock goes into your account and the short shares are listed on your position statement. This can cause some heart palpitations the next market day when you have to clear the short stock. The real trouble begins if the stock price rockets higher if you don't have the cash to cover the difference from the price where you sold it. If you have any doubts, ask your broker what would happen in this scenario with a sold stock option closing in the money.
New trader still learning here. Thank you for the simple-to-understand videos. However, I have a question. It would be great if anyone can help me out here:
In scenario 1, since the stock did not rise above the strike price, wouldn't both options technically be in the money?
In case anyone has the same doubt:
For call options, they are ITM as long as the current market price (CMP) is greater than the strike price. In scenario 1, CMP is < 100; therefore, the call options of strike price of 100 would be OTM. While buying the call option would result in a loss, selling the same would have resulted in a profit.
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My question to you is how can you call guessing the stock market which as you put it a 50/50 gamble true in a bull market? You stated this concept in an earlier video. Doesn't past stock performance skew your option trading decisions?
in your vertical spread example scenario 1, how do you take profits before expiration when you have sold a call option, meaning the one with the power to exercise his right is the buyer and not you? Therefore, how do you take profits before expiration if the buyer of the call option still has time to wait and the rights to exercise the option?
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I'm new to options trading and these videos are very helpful but i was wondering why would you not sell a call option that is extremely unlikely to fail. I know that profit will be low but since it is extremely unlikely to fail why not buy more contracts to increase profit. for example, stocks that are in clear downtrend with exteremly bad news coming out of company.
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Very well done. I learned alot. But what I can't get my arms around is once I book a vertical option as in the examples in this video do I need to manually do anything to buy or sell the call? Or does it automatically happen? Also, how could you sell shares you don't have?
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This is insane. Give me one historical example (just one!!) of when you could have established such a spread on a stock that has only a 1% probability of rising above your vertical call threshold. These vertical spreads are insidious. You may win for a while, but the chickens ALWAYS come home to roost. I've never been stupid enough to try, because I've done my homework. There are NO SHORTCUTS to investing. Simple vertical spreads are for neophytes and idiots. (Or con artists who make more selling "seminars" than actually trading or investing.)
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How far out of the money do you usually go? I've taken an investing workshop that does a great job explaining bull put spreads/bear call spreads/iron condor type strategies. He recommends 11% OTM for bull put spreads and 9% OTM for bear call spreads. Making sure your probability OTM is greater than or equal to 90% and/or delta is between .04-.10? Curious as to how you choose your strike prices for each? Great video by the way!
I had a problem understanding the "loss" math. If I have 100 shares (1 contract) at 3.00 and that puts cash in my pocket of $300, how does the 30 points above my option turn into $2700? Would someone please spell it out a little more clearly? Love the video by the way...great information!
I am convinced this is a great strategy, however, if the stock price expires in between the two strike prices, you will be assigned the stock and the other leg of the option will expire. So, you will either have to fund your account to buy the assigned stock or sell very quickly on monday morning or the next day and if the stock gaps down you could have large losses. I don't know why most of the guys who sell education don't address this situation. Most of the time experienced traders using this option will close the position or roll it out another month, before the expiration day. If you don't understand this in a detailed way, don't use it.
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I need to understand about naked calls before trading. I am thinking about writing a naked call on a stock that is trading at 80.95. The strike price is 70. The premium I will get is 11.25. If assigned, I will be short 100 shares and I will need to buy back the stock. So when I write the call I will get $1125 put into my account. But my question is if I am assigned, does my account go short 100 shares. Or 100 short plus I get $7000 into my account. Please let me know. Thank you.
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So if I buy a call, and the expiration date is in one month. Lets say the stock went up a lot today and I think it wont go higher than this over the course of the month, what options do I have right now if i want to collect, and which option would you take?
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