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The BEST Credit Spread Option Strategy Video Tutorial

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http://www.optionalpha.com - Learn how to trade the Credit Spread Option Strategy with this great video tutorial. Honestly, there is no "magic secret" to trading options. It simply comes down to an understanding of risk management, option pricing and strategy selection. Instead of learning these lessons the hard way (i.e. losing your shirt in the market), why not take my free 4-part video course as I cover each area in detail. Plus, I'll go over the exact checklist I use for selecting trades each month! Start your free 4-part video course here: http://optionalpha.com/free-options-trading-course Whether you're looking to use options trading for hedging and protection or speculation and income, you'll need to know more about how to use options correctly (meaning that you should actually make a profit). That's where we come into play! Just getting started or new to options trading? Here's a quick resource page we made that you'll love: http://optionalpha.com/start-here Because we know you don't have time to sift through our blog for the top posts, we've compiled the best articles for each of the major categories in the above link. Have fun exploring!
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Text Comments (36)
Jim Sullivan (1 month ago)
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Anonymous (9 months ago)
Ian Klimisch (9 months ago)
video is a bit misleading. first of all, max loss will always be greater than max profit on an OTM credit spread. second, you do not gain the entire premium received by selling the put or call, you have to subtract the premium you paid to purchase the other put/call that is further out of the money. Thirdly, there are many more circumstances that can cause a stock price to move drastically other than just a stock buyout or market crash. Quarterly earnings reports, recent news, the launch of a new product, etc. can all shift a stock price +/- 25% so unless you're selling wildly OTM credit spreads, there are many more instances in which you can lose money than you suggest.
L O F E N O I A L O F (10 months ago)
In order to sell puts or calls do you have to own 100 shares of each sell order? Thanks !
dawayne robinson (8 months ago)
L O F E N O I A L O F either that or get your account approved for margin and then you can sell spreads without owning the underlying
spokenwordz (1 year ago)
Dan Tetreault (1 year ago)
Assumption, do we own the underlying stock?
dawayne robinson (8 months ago)
Dan Tetreault either that or get your account approved for margin and then you can sell spreads without owning the underlying
Zohaib Khan (1 year ago)
guys this strategy is very simple.. If you know how naked put strategy works. He is just putting a stop loss for his naked put. If price goes beyond his naked put strike price, he will cap the loss and get out. Simple
thereyoflite (1 year ago)
What if the option is exercised before expiration?
faresar (5 months ago)
Yeah no one talks about this scenario.
PhD Football (2 years ago)
This is really a poor explanation. You fail to mention how far away from the at-the-money strike you sell the spread and what calculations of probability are involved with that. Further, there is no mention of the how far out you are executing the spread. Whether or not you use puts or calls depends on if you are bullish or bearish on the underlying security - another basic fact you fail to mention. Puts are used when you are bullish while calls are used when you are bearish when selling credit spreads. Bad video and poorly illustrated.
richy r (2 years ago)
so if i buy a vertical spread for 100 and my max is umm 150 do i keep the 100 i invested and also the 150 which would make it 250 or ill just make 50 bucks on this trade.
Anttjuan Reid (1 year ago)
richy r I think you'd make 250.
tubewatcher38 (2 years ago)
This video could use more details - what type of spread & what specific options were bought/sold relative to the profit/loss graph & price chart; how much of a credit; what to look for before entering; what to watch/adjust during; when to exit....
PhD Football (2 years ago)
tubewatcher38 this video lacks almost every necessary detail when executing credit spreads.
No Spring Chicken (2 years ago)
That's a great tutorial. Credit spreads are still the best options strategy for a novice. It's easiest and safest to do
reese_ ks (2 years ago)
Ive never seen a credit spread where the credit is higher than the max loss
Brenden Valenti (1 year ago)
Sell an ITM spread
SINGHIZHEM (3 years ago)
Do you need to own shares of a security to use this strategy since you are selling puts/calls?
Kenneth Morrison (4 years ago)
In the case where you sold a put with a strike below the stock price, what happens if the stock price drops to or below the strike price? Is the Option exercised when the stock price hit the strike price? Thanks
Anttjuan Reid (1 year ago)
Option Alpha I thought the point of these spreads is that its risk defined. Doesn't sound like it too much tho if you'd be obligated to buy the shares if it falls below. Am I missing something?
Option Alpha (4 years ago)
If you sold a put and stock drops below your strike price (plus your credit from selling the put which equals your break-even price) then you'd be obligated at expiration to buy the shares at the strike price. The option is not automatically exercised until expiration.
casinowiz007 (4 years ago)
Small error?  The stock price is $18.30, I'm bearish.  Instead of call spread above stock price as in video.  I executed put spread, sell put $22.50 and buy put $21.50.  If stock price stays below $21.50, I keep the premium, right?  Thanks
Sam Priddy (5 years ago)
I still don't understand how you are only losing less than you are profiting?  Most of the time I've seen this exact strategy risk the loss of more money than it would have profited.  This of course is from my experience watching videos and reading about the spreads.  I have not traded options yet because I am weary about them.   My biggest concern is what happens when you have to fill that option you wrote because it's been called?  My point is it's almost time for expiration and now the option you wrote is being called, but you don't have time to call on the the option you bought...does that make since?  Even if you use this strategy you can't just call on the other option that you just bought because it has already expired...right? I'm still kinda lost when it comes to options, probably because I expect contracts to be fulfilled, not just expire all the time.    
jasonc_tutorials (4 years ago)
Look up theta and delta. Options expire worthless. Delta is how much the option is worth per  dollar. Theta is how much the option losses it worth per day. You want to buy options with long expatriation and high delta. 
Jonathan Nave (5 years ago)
Why do you buy the call, why not just sell covered calls and let them expire? 
Option Alpha (4 years ago)
Covered calls take a lot of capital to use buying the stock. This is a cheaper and safer alternative.
zdrux (4 years ago)
What if the stock loses you money?.. Why risk it, some day you will have to sell that stock for a possible loss.
Jason Eyerly (5 years ago)
It's basically half of an iron condor.
Option Alpha (5 years ago)
Yep you got it!
speero (5 years ago)
that looks like a SPY chart from 2010
Is it possible to buy monthly options a bit out of the money or at least far enough you could sell on price closer. If it is would it be possible to buy a monthly option and sell the weeklys one strike closer and let the one sold expire and sell the other and keep the profits, assuming that after you sold both options you would have a profit??
TONY (6 years ago)
I do agree....I think that P/L chart belongs to a Debit Spread strategy. Regards!
HB Stone (1 year ago)
I know this is a super old comment, BUT... Credit spreads and debit spreads can have the same P/L chart, just swap CALLs for PUTs. Meaning a bullish call debit spread has the same shape/direction as a bullish put credit spread.
Nikos Fyntas (7 years ago)
tottaly agree!

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