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Intro to Option Spreads

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Want to see more?: www.skyviewtrading.com If you want long term trading success, you HAVE to learn how to trade option spreads. These can be very intimidating and boring to learn... until now. I created this video that should teach you the basics of option spreads in 5 minutes. Watch this 5 minute video and get started learning why spreads are an absolute must. Enjoy, and let me know if you still have questions! Adam Thomas Sky View Trading option trading options 101 option spreads vertical spread calendar spread strategy trader how to trade options credit spread debit spread calls
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Text Comments (67)
Steve K (1 month ago)
Thanks for the video...and all the other great ones. At the 2:10 ish mark how did you determine a 35% probability of profit?
WillShredForBread (3 months ago)
Cant stand the 5 second loop of music
Joseph Maurno (4 months ago)
Excellent class and very well explained.
dog goat (6 months ago)
What website do you use for trading?
Rio Riva (7 months ago)
This is just superb, I've been looking for "all options strategies explained" for a while now, and I think this has helped. Ever heard of - Winoorfa Option Olegroson - (search on google ) ? Ive heard some amazing things about it and my m8 got cool results with it.
Frank Saney (7 months ago)
1 question. What happens on expiry of the option? Do I have to close the contract or it happens automatically? For instance, if I'm on vacation or at work, and let's say the guy whom I sold a call to, exercises his option. Do I have to manually exercise my call option to cap my loss or will it happen automatically?
TruAgape1234 (8 months ago)
2:24 I’m a little confused how you buy the call for $2.10 when on the screen it says $2.07. Do u have to add $.02 whenever u buy a call or something? Thanks! And your presentation style is AWESOME!!
John Thomas (8 months ago)
$2.10 was what is known as the "mid-price". The difference between the bid and the ask, not always but it is possible to have your order filled at the mid. This helps to average the transaction price, the buy high, sell low.
TruAgape1234 (8 months ago)
2:10. What formula did u use to determine your probability of profit? Thanks!
neymarjr wasserball (9 months ago)
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Cody Hall (1 year ago)
Question about gain percentage: Is it correct that the gain percentage is (Max Profit)/(Max Potential Loss)? Or should the amount of capital you have tied up in the order (through margin) be taken into account?
slinkkk crown (1 year ago)
my question is how is the profit limited? the stock could burst over the break even price of a call or put and you will be able to make easy money. how is the profit limited?
Matt DeLong (1 year ago)
It's limited because you are basically allowing someone to buy TWTR from you at 37 (and you don't own the underlying stock at all), if it goes to 45, you miss out on anything above 37 (limiting your upside). To minimize this risk, you are buying the $38 -- so you have insurance against the open risk, so you are limiting the upside in exchange for limiting the downside of $1/sh.
Zenarchist (1 year ago)
Brilliant stuff man
Chirag Chudasama (1 year ago)
very unique, appreciate your logic boss
Jeremy B (1 year ago)
that. was. awesome! thanks for the class!
Behno (1 year ago)
What do u thing of the App "+500" ?
Cass2kX1 (1 year ago)
what happens if we sell a call and it gets exercised?
Lonnie Boudreaux (22 days ago)
Sky View Trading 2 months later still no answer? Why do people who make videos like this claim when you do these you can’t be assigned while other say you can? I understand the spreads but I don’t understand the rules, do you have to buy 100 shares just to sell them back? What if you don’t have the money in your account then what happens? Also can you close/sell the position before expiration? If so what happens? Do you loose the credit you were given? What about any collateral you may have had to put up?
Lonnie Boudreaux (2 months ago)
Sky View Trading wait I was thinking when using options spreads you wouldn’t have to buy 100 shares just so you can sell them. I was under the impression that that’s why you buy a call and sell a call. Your covered both ways. Is this not how it works?
MattsPath (3 months ago)
When the position is closed at market, does that leave you exposed more than the original calculated risk?
Sky View Trading (5 months ago)
You'll have to deliver the 100 shares per every 1 call that got exercised (as slinkkk crown mentioned)... so if you're long shares, you'll just sell them. If you aren't long shares, you'll now be short shares... If this happens, you can simply close the stock position at the current market price and no harm no foul.
slinkkk crown (1 year ago)
then you simply have to deliver 100 shares (assuming it was only one contract) to the buyer. if its not covered and the stock sky rockets you could lose a lot. your loss is unlimited theoretically, so whenever you're selling calls make sure its covered. you don't want to lose money ;)
Hugo vR (1 year ago)
Imagine you bought twitter hahahahaha
Hugo vR (1 year ago)
and aapl not above 130 lolol
chibuzo chilaka (1 year ago)
You are such a fantastic educator. What I learned by watching your videos are unbelievable. Thank you so much.
Sky View Trading (1 year ago)
Really happy to hear that :) Thanks for sharing! Make sure to check out our website. More free videos on there that you won't find on YouTube!
Rod L (1 year ago)
My first day learning about options , so let me just confirm if i'm getting right if not please correct me i'll appreciate it, so basically what an option does is you predict if the stock will go up or down (puts), (calls) Let say a stock is selling for 100 and i buy a call at 105 (at anytime of the day that i believe it will rise to that amount because of my strategy with the graph and the information that a company has put out etc... I will make profit from this correct ? same goes with the PUTS ..stock selling at 100 and i buy a PUT for 98 and it does go down to 98 and i decide to trade that PUT for income ? is this how it all works ? also lets go back with the PUT for 98 what if does the opposite rises up to 102 , i could trade the PUT if i start to see its going up from the 101 mark ... i cut my losses short ? Thank you for anyone who replies to this .... AND BTW i love your videos so far they have been really helpful , i will continue to watch these everyday .
Tom Nguyen (1 year ago)
Do you have any video for Bear Put Spread?
Tom Nguyen (1 year ago)
I see, So there are 2 types of Vertical Spread . 1 is Long Call Spread and another is Long Put Spread? And how can I exit before the expiration date when it makes profit?
Sky View Trading (1 year ago)
https://www.youtube.com/watch?v=1SVswX2V_vE There you go. In that one we explain the Long Vertical Spread. (aka Bull Call Spread or Bear Put Spread). We don't like the term "Bear Put Spread" as it just makes things confusing for people trying to learn. We call it the Long Put Vertical Spread. But either way. That video explains the Long Vertical! Enjoy :)
mwpunk182 (1 year ago)
Can you please explain the math behind the things demonstrated in this video? Where are you coming up with these percentages and so on?
Sky View Trading (1 year ago)
If you're talking about the Probability of Success percentages at around 2:05, well, those are mostly just an estimation. However, you can check out our Analyze tab video to see how you can view an exact Probability of Success number of any trade on the thinkorswim platform. Also, if you haven't already done so, you should watch our 2 recent Vertical Spread videos... We explain the Vertical Spread strategy in depth in both of these videos. I'll link them below: https://www.youtube.com/watch?v=1SVswX2V_vE https://www.youtube.com/watch?v=6_0SbRaHv1U
Cristins kadell (1 year ago)
The background music is distracting, otherwise, it is a clear and well thought out presentation.
John Doe (6 months ago)
I remember it from person of interest :)
John Doe (6 months ago)
I love the music, which BGM is it ?
So Ho (1 year ago)
actually liked the music
Sky View Trading (1 year ago)
Cristins kadell thanks for the feedback! We turned it down a little on our newer videos. Would you mind checking those out and letting us know if the music is distracting on those as well? --thanks!
Michael Thomas (2 years ago)
How do you know when to end the trade? If apple never goes over 130 in your example, do you just wait for the expiration date? How do you determine which expiration to choose?
Sky View Trading (2 years ago)
Good question.. This video is meant to be a very basic video so we didn't really cover much of that stuff, but we do in our other videos (so check them out!). In short, many traders DO wait for the expiration date and try to receive max profit on their trades. We actually rarely do that. We opt to take profits as they present themselves. This allows us to achieve accelerated returns (10% ROC in just 10 days is much better than 15% in 30 days for example), and also allows us to increase our win percentage of our trades. And as for expiration, we tend to trade in the range of 30-60 days. Hope that helps!
alwaysmylove (2 years ago)
When doing this spread do you buy both ends to open or to close?
Sky View Trading (1 year ago)
alwaysmylove you buy to open one option, and simultaneously sell to open the other option.
Kurnia Dharmawan (2 years ago)
I have seen somenof your videos and they are superbs. Keep them coming...
Sky View Trading (2 years ago)
Thanks for the feedback. More coming soon!
Roy Williams (2 years ago)
But to buy and sell a call wouldn't you to own the call your trying to sell like your example if you buy the call at 37 and to sell the 38 call wouldn't you have to own it first
Sky View Trading (2 years ago)
Nope, sure don't. There are two sides to every market. Just like you can short sell a stock, you can also short sell an option. With options, we say "buy to open" or "sell to open". So in the example: you'd be buying to open the 37 call, and selling to open the 38 call. And we treat that all as one trade which we call a "Vertical Spread". With that information, the video should make much more sense. So definitely watch the video again! 👍
Roy Williams (2 years ago)
if you bought the call at 37 why do it have to go to 39 to make a profit
Sky View Trading (2 years ago)
Because at expiration, there will be no time premium (aka extrinsic value) left on the option. So the option will only be worth the price of the stock minus the strike price (intrinsic value). Hope that made sense
Oscar (2 years ago)
Love your videos! keep them coming Adam!
Sky View Trading (2 years ago)
+Oscar M Thanks Oscar! We definitely will! :)
Your videos are awesome thanks so much
Sky View Trading (2 years ago)
+Everyday Athlete Training Centre Awesome, glad you liked them!
gp5 (2 years ago)
Don't you have to own the stock in order to sell options?
gp5 (2 years ago)
+Sky View Trading Wow thanks, all this time I thought that in order to set up iron condors or butterflies that the stock had to be owned first. Thanks
Sky View Trading (2 years ago)
+gp5 Nope! Sure don't!
Syed (2 years ago)
Nice video with good option strategies. Do you have any good strategy in EQUITY CASH INTTADAY too??
Sky View Trading (2 years ago)
+Syed Thanks for the note! I believe the market is very efficient which makes it near impossible to make money in the long-term unless you are incorporating options into your trading. Research strongly suggests this is true. Why don't you just focus on options? :)
Rob Mitsui (2 years ago)
On the order entry it says: "Cost of trade including commissions $48 + $2" - how come commissions are so low in your example? Isn't the minimum fee $9.99 per option contract at thinkorswim?
Sky View Trading (2 years ago)
+Down Town Then you can simply close the stock and it's no big deal. Your broker is used to handling things like this. Early assignment rarely happens anyways though.. And even when it does, it doesn't add any risk so it really isn't a big deal! And with spreads, they really aren't complicated with a bit of repetition (repetition is the key with anything right?). And it makes trading so much more simple because you can manage your trades like a business... rather than having to be concerned with every little technical indicator that really has no significance anyways!
Down Town (2 years ago)
+Sky View Trading thanks for a timely response. I'll definitely check out the website. these spreads seem a bit complicated to me. question, if you sell a call and are assigned to it. how do you manage that with a small account?
Sky View Trading (2 years ago)
.75 for 1 option contract. So, for example, if you buy one option contract on the standard commission rates, it will cost you 10.74. But of course, you want to get these rates lower. We can help you with this. Email me!
Down Town (2 years ago)
+Sky View Trading when you say 75 cents for option contract. do you mean .75 x 100 =75 dollars plus 9.99 commission? or 75 cents for 1 option contract which contains 100 shares?
Sky View Trading (2 years ago)
+Rob Mitsui The standard rates are 9.99 flat fee + .75 per option contract... But my rates are lower than the standard rates - $1.00 per option contract with no flat rate. I was able to negotiate these rates because of the amount of volume I trade each month! But, shoot me an email (via contact form at the bottom of our website) and I will speak with you more on this topic :)
Jay Fowler (2 years ago)
Video is great! But I pay to much in fee they take all my money that I make
Sky View Trading (2 years ago)
+Jay Fowler Commissions will eat you up if you aren't trading correctly or you have too high of rates. Send us an email and we'll try to get you our rates on TDAmeritrade if you open an account with us. [email protected]
Skunkers TV (2 years ago)
thanks for these videos on options they are a big help. any books you may recommend to further my knowledge on option trading?
Sky View Trading (2 years ago)
+baja1776vw We don't recommend any book specifically about options trading because most of them don't talk about the edge that we trade with. Swing over to our website and take a look, we can help with your knowledge gain :)

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