Credit spreads are: • usually slower to react to changes in the underlying stock • not affected by changes in implied volatility • usually less directionally biased than debit spreads • much less likely to be exercised early, and therefore have a better defined risk (with a credit spread you hope everything expires worthless) • more defined in regards to profit potential - you keep the credit, if everything expires worthless as you predicted. (the options profit calculator assumes that IV remains constant, which in real life would affect debit spreads) • therefore usually the better option compared to debit spreads
@@jayfreazy8772 technically yes, but you also *bought* a (more expensive) call, whilst *selling* a cheaper one (as part of the debit spread). So if you get assigned early on the call option you *sold* , you'd simply have to exercise the one you *bought* , and you won't be assigned any shares. Keep in mind, if you're using Robinhood, it might show you a negative balance on your account, until you exercise the call option you bought as a part of the call debit spread.
@@jayfreazy8772 debit spreads are the best (of the two) when you're correct about the direction of the market, especially if implied volatility changes in your favor (if it goes a lot in your favor, I'd consider that you close the spread early, so you can take advantage of that). Credit spreads are better in all the other scenarios, they react slower to changes in the market, and are more stable than debit spreads. You usually buy credit spreads way out of the money, with a high probability of profit (low delta), and you usually just let them expire worthless.
@@maxicato.official Thank you again for clarifying! So basically if I were to get assigned the 100 shares from my "sell call", which is further out the money. My "buy call" which is closer to the money, would protect me from having to pay for all those shares, correct?
@@jayfreazy8772 That's almost correct, except that you're never going to get assigned on calls/puts that are out of the money. You're only going to be assigned on calls/puts that are in the money (to prove this, ask yourself, why would someone ever want to exercise a contract that allows him/her the possibility to buy 100 shares of company XYZ at a price of X, if the company is actually trading at a price lower than X?). So let's rephrase what you said a little: if you were to get assigned 100 shares from your "sell call", which is less *in-the-money* than your "buy call" (making this setup a debit spread), your "buy call" would in deed protect your "sell call", but only if you exercise your "buy call" early, as soon as you get assigned on your "sell call". And since it usually takes some time for option trades to settle (usually until the next trading day), Robinhood may show you a large negative balance on your account until the "buy option" that you exercised gets settled. Since this setup is a debit spread, if you get exercised you'll actually return a profit because the option you buy has a higher strike price than the option you sell. That's why you want debit spreads to end up in the money. On the other hand, if a credit spread gets exercise, you'll end up losing money because the option you sell has a higher strike price than the option you buy.
Thank you for this one memo. I love credit spreads but they are dangerous. As you know lot of us have had issues with this in your discord. But this is great, we can avoid a lot trouble with this strategy. Thanks man!
return/ risk = 17 % for put cs, and 23% for call cs. but you also have to take into account deltas and probab of getting to be otm. put cs = 90% +/- call cs = +/- 70%
Bull markets thrive in low volatility. Cal debit spreads profit from rising volatility. So it makes sense to use call debit spreads in rising markets with low IV.
Ok. Ok. Lets say you win on both don't loose no money everything goes perfect. Call spread you risk $405 max return is $95 with no guaranteed credit. You get your 405 back plus $95 gain= $500 if you loose you loose all your money Put Spread your max risk is $427 that is the collateral you put up and you get a credit back of $73. You get your 427 back plus the credit you received up front = $500 . If you loose you loose only the 427 and gain the $73 credit basically loosing less than the Call spread. Its the same trade. Put spread you give 427 and is guaranteed a $73 debit if all goes well I think you get the debit regardless, but i can be wrong. Credit spread you give 405 with no debit in return so basically i think the risk is the same you are not saving any money or gaining more money by using one or the other. At the end of the day you get $500 if all goes perfect. The benefit of a Put spread is if you loose you loose less than the credit spread because of the Credit you receive with the Put spread. that credit you receive regardless of win or loose. Thats how i was told and what i have witnessed please chime in.
Bro, It pisses me off with the bid ask spreads for credit spreads on robinhood. Its impossible to get filled mid way and when you go to buy back it’s like they force you to lose money. I’m trading all liquid stocks and it still seems to be an issue.
The fact that you posted this on my birthday is the sign from the universe that this video is the one! I’m a newbie and I am excited to make some good profits. Thank you in advance!
Thank you so much. I’ve been spending so much time trying to find the answer to my specific question and this answered it. My big worry was getting screwed over for parts getting executed. That’s why I was worried about doing put credit spreads. Call credit spreads ITM seem safe compared to credit spreads OTM
I do think he made a good point though, how your bottom Put in your Put Credit Spread could get exercised even after your told put Sold, where that wouldn't be a good situation to be in. This is why I like to close mine out early if possible.
@@zachcarroll4779 debit spreads usually run a much higher risk of being exercised early than credit spreads, because with a credit spread you want everything to expire worthless, and with a debit spread you want the spread to expire in the money. However, to protect yourself from being exercised early on a credit spread, you should cut your losses at some point, if the spread is going too far in the money. Set some rules for yourself.
@@maxicato.official debit spreads expiring itm? Say I buy a debsit spread for $75, I want that to go up in value over time, say it goes to $100, close early profit difference. This is the way I understand it.
@@zachcarroll4779 yes, a call option with a strike price of $75, when the underlying stock is trading at $100 is considered "in the money", and therefore always runs the risk of being exercised early. To make maximum profit with a debit spread (at expiration) you need both legs to expire in the money. To make maximum profit with a credit spread (at expiration) you need both legs to expire worthless - out of the money. If you intend to close your spreads early, usually credit spreads are still the safer option, because debit spreads are more affect by changes in volatility than credit spreads are. If you're right about your direction, and the underlying stock moves in that direction quickly, you may make more money with a debit spread than a credit spread. But if the stock ends up trading sideways (causing a decrease in implied volatility), or trades against your position, you may lose money more quickly with a debit spread compared to a credit spread. Usually you only really trade debit spreads when the IV rank is at the 20th percentile or less. This gives you a pretty high probability that the implied volatility might go up, and you can play that implied volatility by exercising early. Otherwise, sticking to credit spreads is the better option.
Juan, if your not a member of Discord, you should join. Its a great place to learn and make a few bucks, but you also gain a kind of friendship with all the members. We all work together on the channel.
Ok...this may not get a reply, but would like to see if my understanding is correct. I do put credit spreads when IV is high. Then, when the underlying stock price increases and theta decays, that works in my favor. Further, if IV declines substantially, my option spread declines even more rapidly. On a debit spread, I have to be mindful of IV. If it's low, then I use this strategy. A rise in price may increase volatility and vega, thereby increasing my option price. Am I on the right page here?
@@TechConversations I've been subscribed to the channel for a month or two now and u consistently put out quality vids bro Thanks. Me and everyone else u help appreciates u bro to the fullest!!! 🙏🙏🙏
Take you for showing the risk of being assigned on those put spreads. Is it better to close your positions the day before experition or what do you recommend to avoid assignment?
Contact Robinhood and they'll unlock it for you. Make sure to let them know that you've been "researching different advanced options techniques for quite a while now, and would like to have advanced options strategies to be unlocked, so you can better manage your risk." Something along those lines.
I have a question for anyone who can guide me. So I sold a put on Robinhood, it expires on 8/21. The stock went below 17 (my strike price) yesterday. I thought I was supposed be forced to buy 100 shares cause it went below the price I chose. Am I supposed to do something to close this? Or is the owner of the shares or Robinhood supposed to take my collateral to buy the stock at 17. I’m confused. I got $230 premium for it. Thanks 👍🏽 I don’t mind buying the 100 stocks at 17.
Usually you won't get the 100 shares unless the price is still under the strike price when the contract expires. It's rare that the buyer excercises their right to sell you 100 shares
TechConversations ahhh. Makes sense. It would be silly if he sold that stock to me at the current price. I also see that there are gains a loses on that stock. Does it affect their daily/week performance of its affecting my money? Thank you so much for taking the time. Your videos are great. I brand new to stock trading.
It is rare to be assigned prior to the expiration date, but if the stock goes significantly down below your strike price, you might get assigned. I got assigned today on an 8/21 option that I sold.
Alpha and Omega Ok, so it is possible to be assigned earlier. Did you get to keep any earnings or loses that occurred during the time you had the contract? You keep the premium no matter what right ? Thank you for your insight
@@avalancha08 You get to keep the premium no matter what. You do not get to keep any earnings or loses that occur while you have the contract. If you get assigned and the stock price is below $14.70 you will lose money on the transaction. If it is above $14.70 you will make money.
If the credit spread is not in the money by the expiration date/time (4:00pm et) you should be good because Robinhood going to automatically exercise the contract for you to get the full/some profit off the premium
I’m new at all this and was hoping someone could explain something for me. Tesla is selling at $1,500 and change today and I can do a put credit spread that expires 8/28 $1,050-$1,100 buy/sell for $3.08/$4.30 so it pays $1.22 per share, $122 per contract. Tesla splits the next day so I don’t see it dropping $500 per share by then. I get I’m risking $500 but doesn’t that seem like an easy $122 to make? Are way far out of the money put credit spreads like this normally a good idea or no? So far I’ve only been doing call debit spreads and praying the stock goes up or put debit spreads and praying it goes down. This getting paid upfront and hoping the bottom doesn’t fall out is a new concept for me and I feel like I have to be missing something. Thanks in advance for any suggestions, advice, comments etc! I only have a few thousand in my account to use so I’m trying not to screw up too bad lol
But the issue on this method using Debit spread, if you let expire the option (without exiting) ... even if current stock price is above the strike price you lose the initial cost paid on this option ...confirm please?
If you let the whole spread expire ITM. Then the whole spread would get exercised, netting you the difference between the strike prices minus the cost of the premium for opening the spread in the first place. So, yes, you lose the initial cost of the option, but because the spread was ITM you should make the maximum amount (since the difference in strike prices is greater than the premium).
What if you do a put credit spread above the strike price? Stock is $70 currently. You buy a put credit spread where your buying a put at $90, and selling a put at $110. You get $200 credit that you get to keep right? And if the stock stays around $75 and expires you keep the $200 and the stock is worthless? Thanks In advance.
when doing a put credit spread, you want the stock to end ABOVE the strike of the put you sold, so in your example you would want it to end over $110 not finish around $75. If it ends up below $90, like your $75 example would suggest, then it is in your max loss territory, which for your example is negative $2000.
Usually you'd want to close a *debit spread* early (especially if you want to take advantage of changes in Implied Volatility). And usually you'd want to let a *credit spread* expire if you think it'll expire worthless. If you have any doubts, you'd close a credit spread early too. Keep in mind, if you let a *debit spread* expire in-the-money (which is where it's supposed to be), your "sell"-leg will get exercised. If this happens before Robinhood exercises your "buy"-leg, Robinhood may show you a large negative balance on your account. But, that's *TEMPORARY* , you'll just have to wait for your "buy"-leg to settle, and you'll end up with a *profit* . P.S. I'm by no means an expert nor am I a financial advisor. Take my advice with a grain of salt
@@TechConversations Dude. For real. I had 10 $SHOP call credit spreads expiring just today. It was clear they were going to expire worthless and I was going to keep the full $800 premium. 9 minutes before market close, Robinhood closed them out at .35, which meant I paid $350 to close them, keeping only $450 of my $800 premium. I should have closed it myself when I could have banked $750, but I got greedy and wanted it all. It did expire worthless by about $13 and I have no clue how Robinhood felt .35 was fair value.
Contact Robinhood, tell them you've been researching spreads and would like to be able to manage your risk more properly through the use of advanced options trading strategies.
I want more bear strategies for someone like me with a small account I definitely feel like there's going to be some companies are going to be going in the red and I want to be able to capitalize on that how would you do that can you make a video on that
Short calls, long puts, debit put spreads, or credit calls spreads. Those are all easy-to-set-up bearish strategies. For any account size, I highly recommend looking into credit spreads over anything else (I'm not a financial advisor though).
Can you do a video where you show how to open a buy call option contract and then close it. I can’t close a contract and my contracts are going to zero. I can’t figure out what I’m doing wrong.
@@georgeofnewyork I'm actually an idiot haha >_< I did some more research and you can exercise early if you want to. It's just a really bad idea because you're throwing away all the extrinsic value.
So I do a lot of put credit spreads on Apple. They are about to do there 4 to 1 split I believe at the end of the month. How would that affect someone who has contracts open during the time of the split?
@@Stage-SideStories no lol that's not how it works, otherwise everyone would quadruple their money if they bought a whole bunch of puts right before the split 😂
beazy903 so you are saying if you got a stock. 5 contracts with a strike of 20. That’s a value of 100. The 5 contracts get multiples by 4 so it goes from 5 to 20 contracts. And the strike price is split by 4. So the strike goes from 20 to 5. 20 contracts and 5 strike is still a value of 100.
I wouldn't buy any contracts before the split, just as I wouldn't right before an earnings call (unless it's part of a greater strategy of course).. however, to answer your question, even though the strike price will decrease by a factor of 4, the options prices won't directly be affected by that change. But, the options contacts will be affected by changes in volatility, and even though credit spreads (for example) don't really feel those changes in volatility, the direction of a stock after a split is quite unpredictable
Maxim Ciscato yeah I was going to avoid trading options on the Apple about a week before the split and then a week after just to see it level out. Put credit spreads on Apple have been money for me
Usually you'd buy debit spreads at the money or slightly in the money and credit spreads far out of the money. The reason you don't want to go too far in the money with debit spreads is because you don't want to run the risk of being assigned early
at 9:58 you said these are both bullish strategy. I think you made a mistake there. Isn't that you are comparing Call Credit Spread (aka bear call spread) vs Put Credit Spread (aka bull put spread) ? Therefore, they are not both bullish.
he is right about both being a bullish strategy because he is talking about a put CREDIT spread and a call DEBIT spread. both of which are bullish no one besides you mentioned a call credit spread
Lol did you not listen to the beginning of my video? LMAO. And no we don't give financial advice, people pay us for our opinion and then they can do what they please with it
1. Join MooMoo & get free stocks ➡ bit.ly/TCMOOMOO
2. Join Webull & get free stocks ➡ bit.ly/TCWEBULL
3. Up To 20% Off LuxAlgo ➡ bit.ly/TCLuxAlgo
4. 25% Off OptionStrat ➡ bit.ly/TCOptionStrat
5. Join TradingView & Get $15 ➡ bit.ly/TCTradingView
Credit spreads are:
• usually slower to react to changes in the underlying stock
• not affected by changes in implied volatility
• usually less directionally biased than debit spreads
• much less likely to be exercised early, and therefore have a better defined risk (with a credit spread you hope everything expires worthless)
• more defined in regards to profit potential - you keep the credit, if everything expires worthless as you predicted. (the options profit calculator assumes that IV remains constant, which in real life would affect debit spreads)
• therefore usually the better option compared to debit spreads
Thank you for this information! Does this mean you run the risk of getting assigned 100 shares when using a call debit spread?
@@jayfreazy8772 technically yes, but you also *bought* a (more expensive) call, whilst *selling* a cheaper one (as part of the debit spread).
So if you get assigned early on the call option you *sold* , you'd simply have to exercise the one you *bought* , and you won't be assigned any shares.
Keep in mind, if you're using Robinhood, it might show you a negative balance on your account, until you exercise the call option you bought as a part of the call debit spread.
@@jayfreazy8772 debit spreads are the best (of the two) when you're correct about the direction of the market, especially if implied volatility changes in your favor (if it goes a lot in your favor, I'd consider that you close the spread early, so you can take advantage of that).
Credit spreads are better in all the other scenarios, they react slower to changes in the market, and are more stable than debit spreads. You usually buy credit spreads way out of the money, with a high probability of profit (low delta), and you usually just let them expire worthless.
@@maxicato.official Thank you again for clarifying! So basically if I were to get assigned the 100 shares from my "sell call", which is further out the money. My "buy call" which is closer to the money, would protect me from having to pay for all those shares, correct?
@@jayfreazy8772 That's almost correct, except that you're never going to get assigned on calls/puts that are out of the money. You're only going to be assigned on calls/puts that are in the money (to prove this, ask yourself, why would someone ever want to exercise a contract that allows him/her the possibility to buy 100 shares of company XYZ at a price of X, if the company is actually trading at a price lower than X?).
So let's rephrase what you said a little: if you were to get assigned 100 shares from your "sell call", which is less *in-the-money* than your "buy call" (making this setup a debit spread), your "buy call" would in deed protect your "sell call", but only if you exercise your "buy call" early, as soon as you get assigned on your "sell call". And since it usually takes some time for option trades to settle (usually until the next trading day), Robinhood may show you a large negative balance on your account until the "buy option" that you exercised gets settled.
Since this setup is a debit spread, if you get exercised you'll actually return a profit because the option you buy has a higher strike price than the option you sell. That's why you want debit spreads to end up in the money. On the other hand, if a credit spread gets exercise, you'll end up losing money because the option you sell has a higher strike price than the option you buy.
Put credit spread when something crashes and debit spreads when your doing good on a call but scared it may drop turn it into a debit spread
Thank you for this one memo. I love credit spreads but they are dangerous. As you know lot of us have had issues with this in your discord. But this is great, we can avoid a lot trouble with this strategy. Thanks man!
Thanks for watching bro!
return/ risk = 17 % for put cs, and 23% for call cs. but you also have to take into account deltas and probab of getting to be otm. put cs = 90% +/- call cs = +/- 70%
Bull markets thrive in low volatility. Cal debit spreads profit from rising volatility. So it makes sense to use call debit spreads in rising markets with low IV.
Ok. Ok. Lets say you win on both don't loose no money everything goes perfect.
Call spread you risk $405 max return is $95 with no guaranteed credit. You get your 405 back plus $95 gain= $500 if you loose you loose all your money
Put Spread your max risk is $427 that is the collateral you put up and you get a credit back of $73. You get your 427 back plus the credit you received up front = $500 . If you loose you loose only the 427 and gain the $73 credit basically loosing less than the Call spread.
Its the same trade. Put spread you give 427 and is guaranteed a $73 debit if all goes well I think you get the debit regardless, but i can be wrong.
Credit spread you give 405 with no debit in return so basically i think the risk is the same you are not saving any money or gaining more money by using one or the other. At the end of the day you get $500 if all goes perfect. The benefit of a Put spread is if you loose you loose less than the credit spread because of the Credit you receive with the Put spread. that credit you receive regardless of win or loose. Thats how i was told and what i have witnessed please chime in.
Bro, It pisses me off with the bid ask spreads for credit spreads on robinhood. Its impossible to get filled mid way and when you go to buy back it’s like they force you to lose money. I’m trading all liquid stocks and it still seems to be an issue.
It can suck at times bro
I mean you used Robinhood....
The fact that you posted this on my birthday is the sign from the universe that this video is the one! I’m a newbie and I am excited to make some good profits. Thank you in advance!
Someone help please. I bought the call as debit. When I try to close, it asks me debit or credit again… which one??
Thank you so much. I’ve been spending so much time trying to find the answer to my specific question and this answered it. My big worry was getting screwed over for parts getting executed. That’s why I was worried about doing put credit spreads. Call credit spreads ITM seem safe compared to credit spreads OTM
First 🤙🏻 . Put Credit Spreads. All the way.
I do think he made a good point though, how your bottom Put in your Put Credit Spread could get exercised even after your told put Sold, where that wouldn't be a good situation to be in. This is why I like to close mine out early if possible.
Need collateral. Many people don't have the collateral.
@@zachcarroll4779 debit spreads usually run a much higher risk of being exercised early than credit spreads, because with a credit spread you want everything to expire worthless, and with a debit spread you want the spread to expire in the money.
However, to protect yourself from being exercised early on a credit spread, you should cut your losses at some point, if the spread is going too far in the money. Set some rules for yourself.
@@maxicato.official debit spreads expiring itm? Say I buy a debsit spread for $75, I want that to go up in value over time, say it goes to $100, close early profit difference. This is the way I understand it.
@@zachcarroll4779 yes, a call option with a strike price of $75, when the underlying stock is trading at $100 is considered "in the money", and therefore always runs the risk of being exercised early.
To make maximum profit with a debit spread (at expiration) you need both legs to expire in the money. To make maximum profit with a credit spread (at expiration) you need both legs to expire worthless - out of the money.
If you intend to close your spreads early, usually credit spreads are still the safer option, because debit spreads are more affect by changes in volatility than credit spreads are. If you're right about your direction, and the underlying stock moves in that direction quickly, you may make more money with a debit spread than a credit spread. But if the stock ends up trading sideways (causing a decrease in implied volatility), or trades against your position, you may lose money more quickly with a debit spread compared to a credit spread.
Usually you only really trade debit spreads when the IV rank is at the 20th percentile or less. This gives you a pretty high probability that the implied volatility might go up, and you can play that implied volatility by exercising early. Otherwise, sticking to credit spreads is the better option.
Thank you so much, I really didn’t know the difference between them and also did not know how to do a call credit spread.
Thanks for watching!
Juan, if your not a member of Discord, you should join. Its a great place to learn and make a few bucks, but you also gain a kind of friendship with all the members. We all work together on the channel.
@@mrb2518 I join the Discord about two days ago and currently familiarizing myself with everything available. Thank you for the suggestion though.
Ok...this may not get a reply, but would like to see if my understanding is correct. I do put credit spreads when IV is high. Then, when the underlying stock price increases and theta decays, that works in my favor. Further, if IV declines substantially, my option spread declines even more rapidly. On a debit spread, I have to be mindful of IV. If it's low, then I use this strategy. A rise in price may increase volatility and vega, thereby increasing my option price. Am I on the right page here?
man you explain it bettee than others!! thank you
Thanks!
Bro I love debit spreads. Thats where its at w/o having to pay/risk alot 🙏🙏🙏
Yes!
@@TechConversations I've been subscribed to the channel for a month or two now and u consistently put out quality vids bro Thanks. Me and everyone else u help appreciates u bro to the fullest!!! 🙏🙏🙏
so, if i do Call Deb spread is kind safe to leave it expire worthless ? don't have to do exit out
The risk of assignment isn't there like for credit spread so yes
So a call debit spread is better?
Thanx for the great explanation, thanks to you I now know how I lost $427 last week, It was becuase I was execised eatly on a put debit spread.
So call debit or put credit spreads?
Take you for showing the risk of being assigned on those put spreads. Is it better to close your positions the day before experition or what do you recommend to avoid assignment?
Can you close them early or do you need to what till expiration?
Nice and I have a lot to learn about things
Thank you for this informational video.
Thank you for watching!
Heyy why is my 53 credit spread in the red I'm new to this
Waiting to unlock lvl 3 options to do Put Credit Spreads
Soon!
Contact Robinhood and they'll unlock it for you. Make sure to let them know that you've been "researching different advanced options techniques for quite a while now, and would like to have advanced options strategies to be unlocked, so you can better manage your risk." Something along those lines.
@@maxicato.official or just raise your salary in the settings and put option experience to 3 plus years lol
I have a question for anyone who can guide me. So I sold a put on Robinhood, it expires on 8/21. The stock went below 17 (my strike price) yesterday. I thought I was supposed be forced to buy 100 shares cause it went below the price I chose. Am I supposed to do something to close this? Or is the owner of the shares or Robinhood supposed to take my collateral to buy the stock at 17. I’m confused. I got $230 premium for it. Thanks 👍🏽
I don’t mind buying the 100 stocks at 17.
Usually you won't get the 100 shares unless the price is still under the strike price when the contract expires. It's rare that the buyer excercises their right to sell you 100 shares
TechConversations ahhh. Makes sense. It would be silly if he sold that stock to me at the current price. I also see that there are gains a loses on that stock. Does it affect their daily/week performance of its affecting my money? Thank you so much for taking the time. Your videos are great. I brand new to stock trading.
It is rare to be assigned prior to the expiration date, but if the stock goes significantly down below your strike price, you might get assigned. I got assigned today on an 8/21 option that I sold.
Alpha and Omega Ok, so it is possible to be assigned earlier. Did you get to keep any earnings or loses that occurred during the time you had the contract? You keep the premium no matter what right ? Thank you for your insight
@@avalancha08 You get to keep the premium no matter what. You do not get to keep any earnings or loses that occur while you have the contract. If you get assigned and the stock price is below $14.70 you will lose money on the transaction. If it is above $14.70 you will make money.
Did you do a CCS in this example, I couldn't tell if it was CDS, you pointed at credit spread?
If the credit spread is not in the money by the expiration date/time (4:00pm et) you should be good because Robinhood going to automatically exercise the contract for you to get the full/some profit off the premium
I’m new at all this and was hoping someone could explain something for me. Tesla is selling at $1,500 and change today and I can do a put credit spread that expires 8/28 $1,050-$1,100 buy/sell for $3.08/$4.30 so it pays $1.22 per share, $122 per contract. Tesla splits the next day so I don’t see it dropping $500 per share by then. I get I’m risking $500 but doesn’t that seem like an easy $122 to make? Are way far out of the money put credit spreads like this normally a good idea or no? So far I’ve only been doing call debit spreads and praying the stock goes up or put debit spreads and praying it goes down. This getting paid upfront and hoping the bottom doesn’t fall out is a new concept for me and I feel like I have to be missing something. Thanks in advance for any suggestions, advice, comments etc! I only have a few thousand in my account to use so I’m trying not to screw up too bad lol
But the issue on this method using Debit spread, if you let expire the option (without exiting) ... even if current stock price is above the strike price you lose the initial cost paid on this option ...confirm please?
If you let the whole spread expire ITM. Then the whole spread would get exercised, netting you the difference between the strike prices minus the cost of the premium for opening the spread in the first place. So, yes, you lose the initial cost of the option, but because the spread was ITM you should make the maximum amount (since the difference in strike prices is greater than the premium).
What if you do a put credit spread above the strike price? Stock is $70 currently. You buy a put credit spread where your buying a put at $90, and selling a put at $110. You get $200 credit that you get to keep right? And if the stock stays around $75 and expires you keep the $200 and the stock is worthless? Thanks In advance.
when doing a put credit spread, you want the stock to end ABOVE the strike of the put you sold, so in your example you would want it to end over $110 not finish around $75. If it ends up below $90, like your $75 example would suggest, then it is in your max loss territory, which for your example is negative $2000.
So which is better
Doesn't higher profit and lower risk mean lower probability of profit?
Do you let debit spreads just expire on Robinhood for Max profit ? Or should I close it
I sell it if its in OTM.
Do we let the debit spread expire or do we have to sell it?
You can do either, I like to close mine right before expiration just so that Robinhood doesn't do it for me (don't trust them)
@@TechConversations so if i bought a debit spread is it like a call, I'm betting that the stock will go above my buys
Usually you'd want to close a *debit spread* early (especially if you want to take advantage of changes in Implied Volatility).
And usually you'd want to let a *credit spread* expire if you think it'll expire worthless. If you have any doubts, you'd close a credit spread early too.
Keep in mind, if you let a *debit spread* expire in-the-money (which is where it's supposed to be), your "sell"-leg will get exercised. If this happens before Robinhood exercises your "buy"-leg, Robinhood may show you a large negative balance on your account. But, that's *TEMPORARY* , you'll just have to wait for your "buy"-leg to settle, and you'll end up with a *profit* .
P.S. I'm by no means an expert nor am I a financial advisor. Take my advice with a grain of salt
@@TechConversations Dude. For real. I had 10 $SHOP call credit spreads expiring just today. It was clear they were going to expire worthless and I was going to keep the full $800 premium. 9 minutes before market close, Robinhood closed them out at .35, which meant I paid $350 to close them, keeping only $450 of my $800 premium. I should have closed it myself when I could have banked $750, but I got greedy and wanted it all. It did expire worthless by about $13 and I have no clue how Robinhood felt .35 was fair value.
I can’t do spreads yet. Do you know how many trades I need to do?
I've heard from people that it is 10 option trades that you need
Contact Robinhood and have them unlock advanced trading strategies for you.
I got mine about 4 option trade on Workhorse.
Probability of profit differs though right?
I can't seem to access these on Robinhood. How do I get to those which I think belong to Level 3 correct ?
Contact Robinhood, tell them you've been researching spreads and would like to be able to manage your risk more properly through the use of advanced options trading strategies.
Why would they not expired together?
I want more bear strategies for someone like me with a small account I definitely feel like there's going to be some companies are going to be going in the red and I want to be able to capitalize on that how would you do that can you make a video on that
Absolutely will do that!
@@TechConversations Awesome looking forward to it
Short calls, long puts, debit put spreads, or credit calls spreads. Those are all easy-to-set-up bearish strategies.
For any account size, I highly recommend looking into credit spreads over anything else (I'm not a financial advisor though).
Will I need to own 100 shares when I do Call debit spread ?
No you don't you will need to put up some collateral though on robinhood
Debit spread don't need collateral.
Can you do a video where you show how to open a buy call option contract and then close it. I can’t close a contract and my contracts are going to zero. I can’t figure out what I’m doing wrong.
ruclips.net/video/ZdGHo8e870E/видео.html
Thanks man!!! I appreciate this.
You're selling an ITM call tho, won't it just get exercised instantly?
Options can only be exercised on their expiration date
@@TheVonWeasel Oh okay thanks
@@georgeofnewyork I'm actually an idiot haha >_<
I did some more research and you can exercise early if you want to. It's just a really bad idea because you're throwing away all the extrinsic value.
So I do a lot of put credit spreads on Apple. They are about to do there 4 to 1 split I believe at the end of the month. How would that affect someone who has contracts open during the time of the split?
@@Stage-SideStories no lol that's not how it works, otherwise everyone would quadruple their money if they bought a whole bunch of puts right before the split 😂
beazy903 so you are saying if you got a stock. 5 contracts with a strike of 20. That’s a value of 100. The 5 contracts get multiples by 4 so it goes from 5 to 20 contracts. And the strike price is split by 4. So the strike goes from 20 to 5. 20 contracts and 5 strike is still a value of 100.
I wouldn't buy any contracts before the split, just as I wouldn't right before an earnings call (unless it's part of a greater strategy of course).. however, to answer your question, even though the strike price will decrease by a factor of 4, the options prices won't directly be affected by that change. But, the options contacts will be affected by changes in volatility, and even though credit spreads (for example) don't really feel those changes in volatility, the direction of a stock after a split is quite unpredictable
@@Stage-SideStories yeah you're exactly right thanks for the clarification
Maxim Ciscato yeah I was going to avoid trading options on the Apple about a week before the split and then a week after just to see it level out. Put credit spreads on Apple have been money for me
so call debit spreads are in the money?
Usually you'd buy debit spreads at the money or slightly in the money and credit spreads far out of the money.
The reason you don't want to go too far in the money with debit spreads is because you don't want to run the risk of being assigned early
at 9:58 you said these are both bullish strategy. I think you made a mistake there. Isn't that you are comparing Call Credit Spread (aka bear call spread) vs Put Credit Spread (aka bull put spread) ? Therefore, they are not both bullish.
No I'm comparing put credit and call debit come on just look at the video title
he is right about both being a bullish strategy because he is talking about a put CREDIT spread and a call DEBIT spread. both of which are bullish
no one besides you mentioned a call credit spread
Thanks for this information, I was confused on what the difference was! Great explanation!
Green day 💪🏾
Nice bro!
His puts r wrong
Cool
Are you a professional financial adviser? Im guessing no. But you offer a paid service that involves giving financial advice?
Lol did you not listen to the beginning of my video? LMAO. And no we don't give financial advice, people pay us for our opinion and then they can do what they please with it
unwatchable as this thing triggered 4 commercials in a 13 minute video, no thanks
lol This guy has no idea what he is talking about. DO NOT listen to this guy's advice or descriptions, they are very wrong.
He is correcto tho