Debit Spreads | How to Select Strike Prices (Options Trading Tips)
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- Опубликовано: 13 июл 2024
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With so many strike prices to choose from, how might you select strike prices when trading debit vertical spreads?
To recap, two of the four vertical spreads are considered debit spreads because you pay a premium to enter the trade.
The two debit spreads are the bull call spread, and bear put spread.
In this video, we'll cover two common methods for choosing strike prices when trading debit spreads, as well as compare the pros and cons of each approach.
While there's no single "optimal" way to choose strike prices, this video should help guide you towards more strategic strike price selection when buying call or put spreads.
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You've explained the concept wonderfully. Thank you.
Another great video, very detailed and clearly explained also. Good one 👍
How do you select your strike prices when trading debit spreads?
I much prefer the more aggressive setup of buying the ATM call and selling something further OTM. I do this because I want to keep my risk per position as low as possible(due to my not having any great skill at picking these directional plays) so the smaller debit paid lets me keep these trades small enough for me not to have to worry about them. Something to discuss in a follow on video would be when to close out a debit spread, for my own trading if the underlying price blows through the short strike I monitor the trade closely to figure out the risk/reward of keeping the position on or closing it out.
Richard,
I agree with everything you said! Also, the video on taking profits is already planned and will be completed this week.
-Chris
You have the most comptehensive set of videos on vertical spreads hands down. I do have a question though...Is it possible to 'buy' in zero meaning what you sold covers exactly the same amount what you are buying cost. And if so what would be the net gain in a $5 spread for example? And lastly what would prevent a person from getting more than one of these if there is no cost involved? Thanks in advance.
I agree this was the best explained.
Excellent video - very helpful!
Do you have any videos that addresses portfolio hedging?
Thanks for the video.
Thanks!
Nice strategy . Call Debit spread.. smart man u r
Your explanation is awesome! Great work!
Thank you!
Thank you..
this video helped a lot. thank you!
You're welcome! I'm glad it helped.
Thanks.
Best options teacher on RUclips hands down Thank you bro! Can't wait to get those courses man! If I haven't funded my tastyworks account yet, but have already opened one am I able to put your referral # in or is it to late?
Hi Jerry!
Thanks so much for all the comments and feedback!
Send me an email through this link so I can help you out with your question:
www.projectoption.com/contact-us/
-Chris
Very informative Video. Thank you!
Thanks for the feedback and comment!
Fantastic video. Thank you.
Thank you for watching and you're welcome.
Question- If you had a daily directional bias intraday, and wanted to enter near open and sell near the close, what method using options would you employ? Would you do a same day expiration debit spread, buying naked single leg? I currently buy naked at the money options in whatever direction I favor. Would I be better served by buying debit spreads, and if so what OTM contract should I sell, 1 SD? 2 SD?
Great job. Congrats.
Thank you!
Every time you do a video with think or swim views I watch these shit like a hawk! 😂😎
Nice video
Best explanations.
Thanks for the feedback!
Im new to Options. With that said I lean towards selling put and calls for the Premium. You seem to lean towards buying spreads. Could you explain why or is it just a matter of situation in the market ?
Thk
Great courses - thank you putting these contents - question - how do you close out a vertical debit spread ? If you sell to close " will both contracts close out ?
Sell the option you bought and buy the option you shorted. It is closed as one transaction, just like the opening trade.
Two thumbs up for your explanation about buying in the money to prevent from time decay.
What about short vs long? I expect price to rebound anywhere up to 10 days
Great video, what is relationship between widening the strikes and profit probability? it seems like it might increase it, but paying more risk.
Widening strikes increases risk and reward. The wider the strikes, the closer it gets to being a long option (if you keep the long strike the same and keep going further with the short strike).
Great video. If only I started doing this 5 years ago!
Thanks for the comment!
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?
How about using open interest for support and resistance comments please?
What about weekly vertical spreads, when you see momentum in the movement of a stock, do you recommend it?
I am not going to say I recommend it, but it can be done. Weekly spreads have much quicker gratification if you are right, but much faster max losses if you are wrong.
So basically in order to make money the price has to stay between your two strikes correct?
what if you buy in the money strike and also sell in the money strike??
what happens then
For a bear spread what happens if I sell at a higher strike price? 🤔
Informative video. I was hoping u would cover a ITM / ITM Vertical Spread and explain the pros & cons. For example, NFLX is at 183. What would be your take on a 175 / 180 bull call spread? The trade would be a bit more expensive....but theta decay is a non-issue here AND 'no stock movement' is required to get all the profit juice out of this spread - assuming NFLX remains FLAT or doesn't drop below 180. Very favorable risk/reward, no? Your take please. :)
Right! It’s a high probability trade and the risk will be more than the potential reward. The trade will have positive decay for the reason you mentioned! Overall it’s a trade that is viable, the downside is the higher cost and higher loss potential compared to profit potential
whats he purple line in the graph?
5:20 stock prices are so quaint, apple at 150, Amzn at 999, VIX at 10 and SPY at 247
What broker is this? Interactive brokers?
Dude .. do trade alerts on your site.
Thomas,
That is definitely in the cards in the future.
However, I'm currently working on developing my trading plans/strategies and do not want to launch a trade alert service until I have them fine-tuned.
Stay tuned!
-Chris
great, looking forward to it.
looks like debit spreads generally have a better risk/reward compared to credit spread is that correct?
They are technically the exact same strategies when using the same strikes (buying the 110 / 120 call spread is the same as selling the 110 / 120 put spread).
But typically when you trade credit spreads, you are selling out-of-the-money spreads which means you have a higher probability of profit, which means more risk than reward.
With debit spreads, if you buy an at-the-money or out-of-the-money spread, you'll typically have 1:1 or better risk/reward.
i thought you could excercise the option at any time? so why all the concern about extrinsic value?
What if both your short and long calls are in the money?
Then you have a much higher chance of full profit, I don’t know why he didn’t explain this strategy but it is what I use and it’s great👍
Someone told me that in a debit spread the strikes you buy and sell have to be consecutive. I'm assuming that's not true?
Not true
I tried it, the TOS platform is not perfect, but closed enough.
I am very lost. In this video you’re saying in order to profit from a bull vertical call the current price has to be greater than the long call but less than the short call. But it another video of yours you said the current price has to be both above the long and short call. I’m sorry I’m just confused. When you structure the bull call spread do you profit when price is above the short call strike or do you profit when price exceeds both strike prices? Could you break this down for me
Same question. I think this is just a different strategy & doesn’t follow the same rule. Not sure though.
@@traveloasis8389 Current price must be far enough above the long call to offset the cost of the spread. Maximum profit is achieved if underlying price is above the short call strike: this would be a good thing.
Pro tip - never do debit spreads, when the volatility index is in downtrend
i still dont understand how this makes sense to do over a decent option. Like this tactic is so risky with so much room for error its not even funny
Yeah short-term options trading is far riskier than investing in assets long-term because you are fully exposed to the specific stock price path over the duration of your trade.