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How To Trade Weekly Options on SPX! | Bull Call Spreads

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How to trade weekly options on SPX Interested in SPX Put Credit Spreads? Check out this other strategy and research tool using this link. http://bit.ly/2JjigD7 Thanks. Eric Try the Options Trading back tester I use before trying any new strategy: http://bit.ly/2yfc2fn Want me to send you a PDF copy of this weekly options strategy? Here's the link. Tell me where to send it. http://vid.us/9pf37l Options trading doesn't have to be complicated. In this video, I'll reveal a simple weekly options strategy for trading the SPX. You'll be able to see how this 30 minute per week strategy performed for the past few years. To maximize your option trading experience, be sure to connect with me in these other places. SPX Strategy PDF, Optionable stocks list, and other free reports: http://vid.us/9pf37l Options Trading Facebook Group to ask questions and share trade ideas: http://bit.ly/2tkdPgh See my 3rd party verified track record with trade alerts: http://bit.ly/2QW2ApW
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Attention Option Traders: This SPX strategy was done during the bull market run and will likely not perform well given that market conditions have changed in 2018. I'm posting new studies on trading the current market over on my Patreon website. Hope you'll join me as we navigate this market with backtested options strategies. Here's the link. http://bit.ly/2DM7bs6
Thank you. It was mentioned in the video that when the bull market ends, this strategy would likely stop working but I still get asked about it. I also mention it in the email I send for those requesting the Presentation but figured I do. Pinned comment. Thanks for your support.
hammockmonk (4 months ago)
Glad you said it: backtesting a bullish strategy during a bull market is a self-fulfilling prophecy. Good on you for identifying it.
Soviet Plays Games (1 day ago)
I know this was about call spreads but I have a bull put spread question. Is the max risk for a bull put spread usually less than the losses from a stock price decline to the breakeven point? For example, if my spread breakeven point was $2 less than the current price, would the max risk be less than if I had a covered call and the stock moved down $2?
There’s a few variables that are hard to answer that question such as how far away from the money your spread is vs. how far your covered call strike is. What I will say is that the amount of capital used would be way less with a spread vs. owning 100 shares of stock. What I would consider is the wheel strategy of selling naked puts on stocks you want to own until you get assigned. Then sell covered calls until it gets called away. Then repeat. A few guys I know do this around dividend stocks so they collect the dividend while they own it. Just some thoughts here since you’re used the selling covered calls.
Soviet Plays Games (1 day ago)
Basically i’ve been doing covered calls so far and I’m interested in trying out spreads, but the risk/reward ratio seems really bad.
Rod Clark (24 days ago)
That sure looks to me like a put spread....what am I missing
J M (22 days ago)
You're not missing anything - it's the same trade - at the same strikes... the Bull Put would be preferable - as it can expire worthless.. saving you commissions - and - tighter bid/ask spread on entry. Volatility readings are irrelevant between the choice of the debit spread vs the credit spread.
+Rod Clark This video was on buying in the money bull call spreads. They have a similar risk reward for selling the same strike out of the money put spread.
Henry Persoon (2 months ago)
this can only work if Volatility rises because of Theta decline
J M (22 days ago)
not true.. VEGA flips from positive to negative at the short strike... changes in vol will only have the effect of speeding up or slowing down time..
simran singh (4 months ago)
Delta is probability ??????????? Delta is the move of your option with resect to the price of underlying ???. Delta of 50 will mean that your option will move $50 if your underlying moves $1.
Yes. It’s both.
simran singh (3 months ago)
Oh Ok. So when Delta is 0.5 it means that option will change 50 cents on 1 $ move in underlying AND ALSO That it has ~50% probability of expiring in money ?
Yes delta is the amount the value of the option will change when the underlying moves $1. It also correlated to being the probability of expiring in the money. It isn’t exact of course but is pretty close. This why you’ll often hear traders discuss selling delta 20 credit spreads or something similar. Delta 20 is far out of the money implying a low probability it expires in the money.
Seth Jay (4 months ago)
Call spread is a vertical right?
Seth Jay (4 months ago)
+Vertical Spread Options Trading OK awesome, subd and shared the video. thanx
Yes you would sell the 180 call and buy the 181 or 182 for protection making it a call credit spread aka bear call spread. If it stayed below 180, both options would become worthless and disappear from your account and you would keep the credit you sold it for.
Seth Jay (4 months ago)
+Vertical Spread Options Trading I believe I understand you correctly but let me use this as an example. I am using SPY, I don't believe that it will go above 180 by next Friday. would I sell a call spread or a put spread? Does that depend on my bias? And if I did that how would I determine what leg to buy and sell? so I did a 180 and 181?
+Seth Jay yes, a call spread is a vertical spread where one call is bought and the other is sold in the same expiration cycle. Buying a call spread has a bullish bias, selling one has a bearish bias.
ps2ke5000 (4 months ago)
I would encourage all of the subscribers of Eric's channel to join him for exclusive quantified strategies and discussions of trades by subscribing to his blog @ www.patreon.com/ It's only $15 a month and it is well worth it.
Bruno Smith (4 months ago)
looking at the spx right now for next week weekly.. i only see 0.04 deltas . that is the higher I can see. what I'm i doing wrong?
+Bruno Smith not sure. I’m seeing everything in TOS. What expiration are you looking at?
Herbert Rubinstein (6 months ago)
wouldn't a credit spread be better 7 days out?
+Herbert Rubinstein you could definitely sell a put credit spread with similar strikes instead. Please see previous comments for differences.
Junaid Sohail (6 months ago)
Two quick questions. 1) How come the average loss is $331 when spread's average buy price was $406? Shouldn't you make max gain if expires ITM and max loss if expires OTM? 2) Options stop trading at 4:00 PM. But stocks trade after hours which affect options prices too. What time exactly is the last second after which option prices don't move and I can know for sure if my spread ended up being ITM or OTM in the after hours trading on expiration day? Thank you!
+Junaid Sohail 1. The reason is because these trades were based on Delta and some of them were 2 strikes wide but most were 1 strike wide. There may also be some trades that expired between the strikes so it’s not always max gain or max loss. 2. I would google SPX settlement for this question. Too much to post in the comments section.
lauratdrummer (6 months ago)
When you close a spread do you have to shave off a little of the price? My virtual spreads seem to have a hard time closing...
You may need to shave off a little to get out ASAP. If you set the exit price though, many times you can filled but it may take a day or so. With weekly options though, you’ll need to air less to get out right away. Hope that helps.
Jeff Brown (6 months ago)
Unless I am missing something, you neglect to add to your analysis that if you leave the trade on and both strikes are in the money it's going to cost $30 for settlement fees. So your profit is now a net of $70, I use Think or Swim and the fees are $15 per leg. There was a comment below that asked the question why not use Puts and there was no answer to the question. If you utilize the same month but use the inverse deltas on Puts you can save yourself a ton of cash. I don't disagree with the strategy it's just not well thought it the whole way through.
+Jeff Brown Good points. Most of these points have been discussed in the comments but I’ll discuss it again. So TOS Is $15 per leg regardless of the # of contracts so if you’re trading 10 or so contracts it’s probably close in price to closing the trade. One other thing not mentioned is the margin needed. Let’s say you wanted to allocate $5k to this strategy. For a single strike wide Call spread at $4 you could purchase 12 spreads. If you preferred to sell similar strikes put spreads you could only sell 10. So you can save the costs on the put spreads but you’ll need more margin. So theres something with capital efficiency that could probably explored more. Thanks for the comment. This is a good discussion and helps others who may want to understand the differences.
Laura Tai. (6 months ago)
So we can copy this and should hopefully get the same results? :) Hopefully?
As long as the market stays bullish, this and other bull strategies will continue to do well. I use the 200 sma to determine bull market or not. With that said, I like spreads a little farther out than 7 days to give time to adjust.
Junaid Sohail (7 months ago)
Great video! Since there is no assignment risk on SPX, I can just let it expire or I can close it earlier if it hits my max profit, both cases are okay, right? Since both legs are ITM, I am guessing max profit won't be until expiration? In bull call spreads, I make max profit when stock stays above both my strikes at expiration, variable profit if it is between the two strikes at expiration and max loss if it is below both the strikes at expiration. Is that right?
Jose Garcia (5 months ago)
(100 - delta =probability OTM)
Junaid Sohail (6 months ago)
Sure. I just sent the request to join the FB group. Thanks!
Junaid Sohail hi there. This may be too much to discuss here in the comments section. Post to the Facebook group or message me on Patreon and I can help.
Junaid Sohail (6 months ago)
Hey. I could find this video you mentioned. Can you link me to it, please? Also, this happened. I'm not sure why. I tested a SPX weekly bull call spread with 2850/2855. It was a 72 delta (if I'm remembering correctly). It did expire ITM, as you can see in the screenshot the mark is 2901. Instead of the $100 max gain I was supposed to make, I made a $500 loss (max loss was $400). I'm confused, what did I do wrong here? http://prntscr.com/kpje8c
This back test had no stop losses. Yes it took a trade every Friday and held to expiration and let the cash settled index settle itself. Keep in mind this study was done prior to 2018 which has seen more volatility and I’d recommend waiting for short term sell offs for long trades than a taking a new trade every Friday. I recently posted another bull call spread video about this but is geared toward monthly options. Hope that helps.
Rachel Chen (7 months ago)
I tried to give you my email for u to send me the pdf version , but my email did not go thru, can u send me to [email protected]mail.com . Rachel , thank you much !!!
I’ll try and send it over later today. Sorry for the technical difficulties.
Sergiu Domenti (7 months ago)
What a great video, thank you! A question I have. Will this be a higher% win if we do it far in the money. Ex. At the time you made the video SPX was trading at 2421, what if we sell the 2355 call and buy the 2350 call (I do understand we need more capital). Does this means the probability of winning is higher since delta is higher as well? And will this be same winning % if done for 1 day, 3 days or 8 days?
Thanks Sergiu. So the probability of winning will get higher the deeper in the money however, when the losses come they will also be larger due to the there being more at risk per trade. There’s kind of a sliding scale. Not sure what you’re asking for different days. Hope that help.
Lisa de (8 months ago)
Thanks for the video. You forgot the PDF link.
You’re welcome. Please check the description for the link to get the PDF. Thanks.
Molle de Jong (9 months ago)
Thank you so much for this video. It confirms once again that I should just stick to a system and go for it, non emotional. I tried this strategy for a few weeks now, but my problem is that I hardly ever get filled. Just today I still tried the 76/74 bull call spread but the spreads between bid (3.00) and ask (5.90) are simply too high. Any ideas on how to overcome this?
Molle de Jong (9 months ago)
Thanks for your reply. What would you suggest the max. price is for this strategy? I checked selling a similar strike bull put spread indeed, but the bid (0.40) and ask (0.60) were too low in my opinion, especially since I normally have to underbid the bid price in order to get filled. What would be the minimum credit you would want to receive for this $5 spread?
Sometimes you’ll have to raise the price to get filled. You can also consider selling a similar strike bull put spread to see if you can filled there more easily.
http://bit.ly/2yfc2fn Here's the promo link for the CML Trade Machine Options Backtester used in this video. They've added a ton of new features for scans and alerts especially regarding earnings trades.
Ioan-Andrei Batinas (10 months ago)
the call spread you are doing is cool, but the oposite short put spread, has the same risk-reward, but since it's out of the money, the bid ask difference is smaller. So you sell for 100 and you have 400 in risk. Or you buy for 400 and you have 400 in risk and your max profit is 100. Same thing, but the bid ask difference on out of money options is smaller. Easier to get filled, did you try that?
That’s a great point about the bid / ask spread being tighter for easier fills. I’ll have to look into that.
Justin Rogers (10 months ago)
After losing $ day trading the last 6 months, I want to try options. I wouldn’t call this a “bull market”’exactly, as some weeks the market is down, some weeks up. Does this strategy work in today’s volitile market? Someone in a chat room I’m apart of only trades SPY options based on the HULL moving average. I’m not sure which strategy to use. This protects your downside via the spread, but I wonder how consistent it is in this market? What are your thoughts?
Yes the bull market definitely changed this year. Keep in mind this video and it’s backtesting was posted in 2017 when all was right with the world. Lol. Anyways, to answer the question, I still like getting bullish on pull backs but personally I’ve switched to bull put spreads this year. I’ve also posted some more recent research on SPY along the same lines so check those out. Thanks for the comment. Eric.
Matt Calay (10 months ago)
Just wondering the benefits of doing your bull-call verse a bull-put.
Matt Calay (10 months ago)
Vertical Spread Options Trading but i have a lot to learn and appreciate your replying
Matt Calay (10 months ago)
Vertical Spread Options Trading thanks ! I guess i was thinking i could do a bear-call if went the wrong way to recoup some money.
It’s relatively the same trade but some minor differences in capital requirement. Also, if volatility is higher, then I prefer bull put. Thanks
Matt Calay (10 months ago)
hello there ! So as long as SPX closes above your short leg you profit max profit ?
jgfunk (8 months ago)
If volatility is low, then premium is lower so it may make sense to buy. I'm still selling options most of the time myself, but I can see value in buying put spreads from time to time.
Matt Calay (10 months ago)
Vertical Spread Options Trading thank you. So is this mainly a neutral or bullish strategy upon entry ?
Yes. Max profit at expiration if it closes above the short strike. Here’s a caveat though. If you hold into expiration, you will pay an exercise fee. Depending on your broker and the number of contracts, it may be better to close the day before instead of hold.
Troy Mitchell (1 year ago)
If the trade goes against you, at what point do you exit?
Hi Troy, so first thing is that I would position this as a full risk trade, meaning I really don't use a stop because the P/L can be volatile being it is so close to expiration. What do though to avoid max loss is to see where the price is trading the day or so before expiration then make a judgement call if I think it'll recover. For example, if SPX pulls back and now both strikes are out of the money, I may just close the trade and take a partial loss. If price is trading at or near the short strike, I would close before expiration with a small gain or loss. One thing I've been doing lately is waiting for a 2 or 3 day sell off before initiating this type of the trade. Then look at options expiring 7- 10 days out. Hope that helps.
Fred Hughes (1 year ago)
Thanks for the videos - great information. Can you share what the performance numbers were for 2 years and 3 years? thank you.
Fred Hughes (1 year ago)
not so good? it looks like there is a big spike in the 76/74 delta series in jan 16.
Thanks Fred. Here's a link to the same backtest for the past 3 years. http://tm.cmlviz.com/index.php?share_key=20171214180849_Kzev4aIdZONiS0zX
Vincenzo916 (1 year ago)
How is this any different from doing a put credit spread on the same strikes? i.e. you can sell the 2400 put and buy the 2395 put for a credit of $1.40, which is the same as buying the 2395 call and selling the 2400 call for a debit of $3.60. If the long call spread expires in the money, you make 5.00 - 3.60 = 1.40. In that case the short put spread also expires out of the money, you make $1.40 - 0 = $1.40. It is the same thing.
Troy Mitchell (1 year ago)
Actually the margin requirement would be 360 as well. There is no difference. Now the neat thing about using a bull put spread is you can hedge it for free if it moves against you. So you can sell a bear call with the same distance between the strikes with no additional margin costs.
You are right it’s about the same trade P/L wise. One small difference is the long spread takes up less capital. In your example $360. The credit spread would take up $500 in margin. So your profit percent gain based on capital needed would be higher with the long spread even though it would be about he same dollar wise. The credit spread would also not have an exercise fee. For those just trading a few contracts the credit spread is probably better. Thanks for the comment. Hope that helps.
P.N. Ranganathan (1 year ago)
Thank you. Clear, low-key, complete. Esp like the caution and your sincerity.
+P.N. Ranganathan Thanks for the kind words. I hope it helps. Eric.
dmo1964 (1 year ago)
All your videos are good information. I appreciate it. In this trading system, am I to assume that the 2 or 3 year back testing would give similar results as presented here in this video with the 1 year? Also, do you usually put this trade on on Fridays with the next Friday weekly option chain set to expire?
Delta 20 is the greek delta at the time of the trade and loosely translates as a probability of expiring in the oney. So a delta 20 be about a 20% chance the option expired in the money, or about an 80% chance it expires out of the money which is the goal of a credit spread.
AJ Giglio (1 year ago)
@Vertical Spread Options Trading - what do you mean by Delta 20? Is that the Delta on the put side? Does that replace the 72 - 74 Delta on the call side? And can you elaborate on the 2 day decline?
+dmo1964 Yes.
dmo1964 (1 year ago)
Still using the 20 delta I assume?
+dmo1964 Thanks for the comment. Yes the past 1 year has been good for this trade. What I’ve been doing though as of late is waiting for a 2 day decline and then selling a put spread 7 - 10 days out. Some longer. The reason being is that volatility has increased making put credit spreads more appealing. It’s all the same concept though. Use Delta as a probability whether buying call spreads or selling put spreads. Hope that helps.
seven day options (1 year ago)
Oops I was looking at double diagonals on spx on a different video, and I came across yours for trading spx option and was responding to a comment down below. I forgot I was at the wrong tab when I posted the last comment. I wasn't trying to discredit you. As a matter of fact this strategy seems to make 5x commission cost which is really good. Nice and a very simple yet effective strategy.
+gue kim Another way to reduce commissions on this trade is to widen the strikes. The examples shown here are single strike SPX spreads.
+gue kim No problem. I figured there was something going on. Cheers.
+gue kim No problem. I figured there was something going on. Cheers.
seven day options (1 year ago)
As in if it cost you 8.95 per trade x2 since your buying and selling this strategy it will net 5x that in returns vs cost of trade ( I'm not counting the debit cost) Anything above 3x return vs cost of trade (commissions) is really good.
HB Stone (1 year ago)
What if your only options are around .80, then .70, then .60 - there are often not two deltas in the 70s for SPX, at least not that I can see right now. Checked every expiration date for the next 2 weeks and I get like 88/72/59 so there's only one that matches low/mid 70s delta. In that case is it better to go with the 80/70 or the 70/60? Neither look great to me - for 10 contracts ToS is saying around -3.6k downside and +1.3k upside. Great video, thanks for putting it up, but I just can't match up the advice to what I see in the data, please help =)
+HB Stone Thanks HB. So this back test focused on selling the call option in mid to low Delta 70s. If you sell higher like 79, the probability is higher but the the reward is lower. The general idea is that the Delta is about the probability that the option will expire in the money. For this strategy, that would mean max profit. I understand the option chain won’t always have everything but there should be st least 1 or 2 call options in the 70s to consider. Hope that helps.
Siddhesh Tulaskar (1 year ago)
Double Calendar Spreads. Suppose the Call side debit is 3.18 and put side debit is 3.4, so my margin required will be the most money I can lose 3.4 * 100 i.e., 340 usd or it will be 3.18 + 3.4 = 6.58 *100 i.e., 658 usd?
Matt Calay (10 months ago)
i believe those are debits spreads so no margin requirement and what you pay is your risk
Siddhesh Tulaskar (1 year ago)
That doesn't answer my question on the margin required?
seven day options (1 year ago)
Not a wise decision to do double diagonals (aka double calanders) ever on the spx. You will always lose money even if your within parameters of your strike zone. Calenders on spx has a significantly high pos vega and spx implied volatility will always fall. Personally spx is probably one of the most difficult to trade in.
I'm not an expert at Calendars but there's a few guys who trade them in our Facebook group. I'd join the group and ask the question there. Here's the link. http://bit.ly/2tkdPgh
orkayen (1 year ago)
If the strikes are deep ITM and when you say you had 6 or 9 losers, does it mean that the index (SPX) got hammered during those weeks and the deep ITM strikes became OTM.  By expiration, if it moves down but strikes are still ITM, you will loose some but not completely. Correct?
If the SPX moved lower but both strikes were still ITM, you would make money at expiration although you'd likely be down in the trade for a while. You'll only lose money if SPX moved lower than the breakeven level which is typically just below the short strike. This depends on how much you purchased the spread for. Hope that helps.
orkayen (1 year ago)
In one of your replies, you have mentioned that the gain is $0.90 per contract, which is 20% gain. Do you think we get similar results trading equities as long as we close the trade on expiration?
+orkayen Good question. So if you’re trading in the money call spreads on regular equities you run the risk of getting exercised early or dividend risk. To avoid this , you could sell similar strike put spreads that will be out of the money to avoid that risk. Hope that helps. Thanks for the reply.
Ed Carlson (1 year ago)
Why don't you do bull put spreads using the exact same strikes? You will save on exercise fees and commissions.
abdi achref (1 year ago)
This was great, I've been looking for "home options trading" for a while now, and I think this has helped. Ever heard of - Winoorfa Option Olegroson - (just google it ) ? Ive heard some decent things about it and my friend got excellent results with it.
Yvonne Scheier (1 year ago)
Thought spx was cash settled, but TOS hit me with assignment charges anyway a few months ago.
Al bay (11 months ago)
spx is an index . what assignment? what exersize?
Agreed. With buying debit spreads, the goal is for both strikes to end up in the money at expiration which implies there is some kind of fee to close the trade. You either close it or they close it for you.
Galileo7of9 (1 year ago)
"you won't get assigned stock but with there can still be an exercise fee" is the "catch" to which I referred.
Galileo7of9 (1 year ago)
"The SPX is cash settled so there isn't assignment." I don't think that was questioned.
If you're only trading a couple spreads it's most likely cheaper to close the trade. If you're trading 10 or more spreads then getting exercised may be cheaper. Getting out of the trade will cost you if that's what you mean by there's a "catch". lol
PlushEnt4tLife (1 year ago)
How did you decide to pick your particular strikes?
PlushEnt4tLife when choosing the strikes, the sold strike needs to be about a Delta 75. Doesn't have to be perfect but some where in the mid 70s. Then the strike you buy just needs to be strike above the one you sold. Hope that helps.
PlushEnt4tLife (1 year ago)
Can you post the pdf link in the comments?
Here's the link to get the PDF. http://bit.ly/2qeQXwG It'll ask for your email there. Eric
PlushEnt4tLife (1 year ago)
Vertical Spread Academy do I put my email in the comments?
PlushEnt4tLife The PDF link is in the description. It'll get emailed to you after you confirm your email.
tawmoss1 (1 year ago)
Hello, This strategy assumes a "bull market". Is there an equivalent strategy for a "bear market"? Thanks
Your welcome. Yes, this can also be done RUT although the bull call spread back test does not perform as well as SPX.
tawmoss1 (1 year ago)
Thank you! On a separate note, can this also be done with RUT to avoid dividend and assignment risks?
tawmoss1 Good point. The past few years we've still been in a bull market but have also had some sideways movement which this strategy works also. For a bear market, you could simply switch to puts spreads with similar deltas. I've not backtested this but as option prices increase the delta/probability should adjust also. Hope that helps. Thanks for the comment. Eric
Perso Email (1 year ago)
I could be wrong, but...your TOS order shows that the max you would make on this trade (if both legs close ITM) is $41 (excluding commission) -- see "Analyze" tab. And that's far from 20% return you've mentioned!
Hi Perso, If you purchase a $5 wide call spread for $4.10 and both strikes are in the money, the spread will be worth $5 at expiration. This would be a $0.90 gain which is about a 20% gain. If you're trying to reproduce this in ToS, make sure you lock the price of $4.10 on the Analyze tab so the prices are the same. You should see the max gain at $0.90. Let me know if that makes sense or if I'm missing something. Eric
Eric Lentz (1 year ago)
How can you tell you're dealing with a cash settled index? Will any index work like this whereby you don't need to settle at expiration to avoid assignment? Also, you said that we just let these expire. We don't buy or sell at expiration? Just do nothing if we're still in the money?
Allan Azucena (9 months ago)
Vertical Spread Options Trading can you make another video about this but do the every 3 days expiration on SPX
Hey Eric, The two main cash settles indexes with liquid options are SPX and RUT. Most other ETFs like SPY, QQQ are settled using the underlying in which you could get assigned stock if you have in the money sold options. Yes, if both are still in the money at expiration, you can let it expire and it gets settled in cash in your account. If they both expired out of the money, they would be worthless per usual. If it settles between then the cash difference of what you paid goes into or out of your account. Like most spreads, if you got a big move in your direction and can collect most of the premium, it makes sense to close it early and wait for the next setup. Side note: I think SPX has 3 expirations per week now, so in theory, you could trade this 3 times per week although I haven't tested that or traded it. Looking into it though. Hope that helps. Eric O.

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