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How to Trade Vertical Debit Spreads
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- Опубликовано: 12 авг 2024
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Also worth considering closing the short position and not opening a new short position if the stock moves against you. That way, if the stock goes back up you can sell another call for a higher premium, but if it goes down you lose only a little extra in the premium paid to buy back the original call.
Now that fees much less than when this video made it’s beneficial to adjust when price close to 100 near end of term
Excellent Mike, great explanation
Hello Mike. Love your explanation. I have an open bull call spread that's 6 days in the trade and 57 days to expiry. Unfortunately, it's at 50% of max loss already. One exit strategy I have is to close the trade at 50% loss and just book the loss.
However, after being enlightened by your video, I want to apply your Debit spread adjustment.
My question is..."When is the good time to do the adjustment?" Now or let it ride 1st till when? I'm still bullish on my expectation.
Advance thanks.
DannyG
Hi Mike, when you say adjusting the short leg, do we roll the entire spread or adjusting the short leg individually? also, if the lost is deep, can we adjust the short leg as close to the long leg to minimize the damage as much as we can?
Thanx again maikeee...
great vid mike thanks for the knowledge
Extended question here: What if the underlaying rises about the short strike with significant to expiration such that closing the position would leave me with around half of max profit? I would have increasing gamma exposure as time passes, hence an increasing chance of losing all of my gains if I didn't make an adjustment. One Idea I had was to delta hedge the position by shorting stock and monitoring the amount of long delta of the spread. This will become increasingly difficult, costly, and margin intensive due to the increasing gamma exposure over time. The only other option I see is to roll the long call up to the strike of the short call to make a calendar in order to benefit somewhat from the high theta close to expiry as well as lock in some of the profits. Is this the right way to think about this or is there a better way?
Typically we just close the trade if this happens - since max profit is defined, we're already 50% there, and that means our risk:reward has skewed out of our favor - we can n ow only make 50% of our initial max profit going forward, but we can lose our initial debit + unrealized profit. The more profit we see, the less we are inclined to keep the trade on.
Thanks for your reply! What if its more like 25%? I've got call spreads on GLD for March and my short strike is 155. I am thinking about just rolling the spread higher or delta hedging with the underlying for a few weeks to collect the theta. Which would be better? Risk reward is still attractive here since I am slightly slightly better than a coin flip to have max profit by expiry.
Hello Mike, are there any indications from Greeks as well to know whether it is time to adjust the spread?
Not necessarily - debit spreads, and spreads in general have very little greek exposure, so it's more about risk:reward and assumption of the stock
@@tastyliveshow Thanks!
In this volatile environment, it could move profitably, and then suddenly tank! Wouldn't it, if it moved in your favor, be better to take your profit while you could?
Also, while cash secured puts are considered somewhat safe, what if you sell one, and then the stock tanks? Any good strategies, or do you just have to eat it? (Wells Fargo stock).
p.s. Thanks. I just opened an account.
Hey Ron!
Totally ok to take profits - we take profits early if we get them quickly, for example 25% in a day if we're shooting for 50%, we'll take the 25% in a day and close it usually.
For cash secured puts, I see those as more long term trades. Either way, an ITM put is the same as a covered call on that strike, so you can continue to roll the put forward in time and collect more extrinsic value instead of taking the stock. Not much else to do other than that if you had not purchased an OTM put to define risk from the beginning.
Totally up to you though!
Hi Mike, say if price shoots pass $110.10 what do we do then?
We would likely close the trade for a profit - you want the stock to move up above your short call when you buy a call debit spread.
If a trade is moving in your favor, could you roll the debit side up?
You can do anything, but rolling the debit side up typically results in a debit payment, which reduces your max profit and increases your risk.
pl write down on empty white board to explain
What would you like an explanation of? I can help here!
How does open interest and volume impact my debit spread if both the long and short call expire in the money? If both volume and open interest are low, will I still receive max profit by allowing it to expire in the money?
It won't affect it at all - these metrics are really just to show you if there is activity in the market in general - I would be more focused on the bid-ask spread, which is the market set for you to get in and out of trades prior to expiration. If you hold a trade through expiration and both options are ITM, they'll automatically exercise and offset each other.
If stock doesnt seems to coming back 105 before expiration consider selling an extra 105 Call to make ratio spread 2:1 you can minimize loss completely on downside but on upside above 105 its maximum loss. You can choose 108 CE to sell to make ladder Call but you will get less credit and also you loss will be above 108. That is MAXIMUM LOSS be aware
8:00
Catch Me if You Can! You dead ringer for Leonardo LOL.... nice video
Hi Mike and Tastytrade team. I'm new to this. I keep hearing this term selling the short /long call back into the Market ?. Pls elaborate. Thanks
You don't have to hold a trade through expiration. If you sell it to open, you can buy it back at any time to close the trade. Vice versa if you buy to open, you can sell to close at any time.
Normally how many days do you buy the debit spreads for ?
Typically in the same range as short premium - 30-60dte