When you roll down. It means you are closing your existing position and initiating the new one hence when you close the debit spread prior to rolling you will have $2725 realized loss wouldn't you? But the way you are explaining is double down to lower strikes in the name of rolling and hoping that SPX will trade higher. It looks good the way you have presented it after the SPX moved up and you calculated the net profit. But the fact is you did realize the $2725 loss had you not rolled it and you would have lost even more if the SPX would have gone down instead of going up. It helps to list the realized loss prior to rolling and list both pros and cons prior to double down the rolling trade if SPX goes down instead of going up.
I just noticed this now that you pointed it out. Also, rolling can be quite risky if the stock keeps tanking or tanks then comes back but not enough. Ask me how i know.
Thanks as always for great content learned significantly. What about the theta decay would it not affect the 2 options on the bull call spread differently. Also how do you close out the trade before expiry on stock options if you think the price will be in between and you don’t want to own the stocks. Thanks
The original premise/analysis was that the SPX was in a Bullish condition, thus the Bull Call Spread. The first trade was a loser, and showed that after a month, the analysis was wrong. There was nothing to indicate that the there was a change in the analysis, as the trend of the SPX was very apparently down. I would not have initiated the roll and would have taken my loss and moved on to another trade. Certainly wouldn't have doubled down, since the downtrend could have continued. But, I'm inexperienced.
Great content as always. Wouldn't it then make sense to buy a debit vertical on expiration day directly? Seems much easier to get the price right with a wide spread on the day than a month ahead...
May I suggest showing us diagrams with charts and candles? This would make for easier understanding with visuals we are familiar with. Draw a line where you sold calls and another line where you bought calls and then go from there.
I am a bit confused when the video talking about the index dropping down and 4450 price dropped to $22.95 from $83.25, while 4350 price dropped to $69.75 from $157.30. should it be another way round? 4450 price dropped to $ 69.75 from $ 157.30 ........?
another question at time of 12:07: why do we still need to take into our consideration of "proceeds of selling 4350 call", shouldn't the "Original Cost of bull call spread" have already done it?
Correct with SPX since it is cash settled, but with stocks or ETFs like SPY you may have to deal with early assignment if your short call is ITM, or your broker's automatic exercise of your long call resulting in share ownership if price is between the long and short strike at expiry. In those cases, you would need to decide if you wanted to manage the trade early.
What would help if you could tell what Delta you are choosing to buy ITM calls. Seems like for bull call spread Delta must be around 80 or higher to be able to make money for close to 30 DTE, also what value of IV you look for when initiating ITM bull call spread?
with the sale of a call, are you not obligated to buy the underlying stock to sell at expiration? or does being in a "Call spread"/"Call Vertical" negate that? is there no assignment risk?
With the sale of a call you are not obligated to buy the underlying stock, you are obligated to sell it if the call expires ITM or if you are assigned early. You might be thinking of the case where if you aren't approved by your broker to sell naked calls, you would either need to own 100 shares per call sold to cover the short call position, or you would need to be long a call to offset the short call risk. Yes, the call spread negates having to own shares to cover the short call risk if you aren't approved to hold a naked short call position in your account. There is no assignment risk in the example, SPX, since they are European style options. However, in an ETF like SPY, which are American style, yes there could be assignment risk but it would be offset if both calls expired in the money. Or, if the short call were in the money and someone exercised their right to buy shares and you were assigned shares early you would have your long call in place to offset it and could sell it back to the market to capture any extrinsic value and purchase shares to close the short shares position (you could also exercise your long call but would be forfeiting any extrinsic value in the long call).Owning long shares would be an issue if price were between the long and short call at expiry. You would have to decide if you wanted the shares or just close the trade before it expires.
With an index fund like SPX, there is no risk of assignment, as there are no shares. It is cash settled. With stock or ETF - it depends of your settings. If you have cash only account and trade options with (let say) SPY, for every single short call (or put), you might need 100x ~$450 = $45'000 in capital available. If you have a margin account, it is different - much less cash requirement.
When you roll down. It means you are closing your existing position and initiating the new one hence when you close the debit spread prior to rolling you will have $2725 realized loss wouldn't you?
But the way you are explaining is double down to lower strikes in the name of rolling and hoping that SPX will trade higher. It looks good the way you have presented it after the SPX moved up and you calculated the net profit. But the fact is you did realize the $2725 loss had you not rolled it and you would have lost even more if the SPX would have gone down instead of going up. It helps to list the realized loss prior to rolling and list both pros and cons prior to double down the rolling trade if SPX goes down instead of going up.
I totally agree with you, SMB has the habit of never showing losses or letting us know the risk involved in all the strategy videos they post
i agree with this. the trade also not possible with small account.
I just noticed this now that you pointed it out. Also, rolling can be quite risky if the stock keeps tanking or tanks then comes back but not enough. Ask me how i know.
Very true, if it falls sharp, no amount of rollover will help!!@@FranciscoDelValle180
Reflexively rolling a trade can go very bad. Ask yourself if you would have made the roll trade if you were not trying to salvage another trade.
Thanks as always for great content learned significantly. What about the theta decay would it not affect the 2 options on the bull call spread differently. Also how do you close out the trade before expiry on stock options if you think the price will be in between and you don’t want to own the stocks. Thanks
Thank you for showing a trade that goes sideways, good explanation and strategy to recover, assuming SPX does bounce that is
Eventually, Im gonna hold this info in my brain...... thanks, you guys are terrific !
Great video. Could you zoom in on the Options values so they are easier to see?
The original premise/analysis was that the SPX was in a Bullish condition, thus the Bull Call Spread. The first trade was a loser, and showed that after a month, the analysis was wrong. There was nothing to indicate that the there was a change in the analysis, as the trend of the SPX was very apparently down. I would not have initiated the roll and would have taken my loss and moved on to another trade. Certainly wouldn't have doubled down, since the downtrend could have continued. But, I'm inexperienced.
Great content as always. Wouldn't it then make sense to buy a debit vertical on expiration day directly? Seems much easier to get the price right with a wide spread on the day than a month ahead...
May I suggest showing us diagrams with charts and candles? This would make for easier understanding with visuals we are familiar with. Draw a line where you sold calls and another line where you bought calls and then go from there.
@@randythayer8440 I never said I didn't understand it.
I am a bit confused when the video talking about the index dropping down and 4450 price dropped to $22.95 from $83.25, while 4350 price dropped to $69.75 from $157.30. should it be another way round? 4450 price dropped to $ 69.75 from $ 157.30 ........?
another question at time of 12:07: why do we still need to take into our consideration of "proceeds of selling 4350 call", shouldn't the "Original Cost of bull call spread" have already done it?
Is my assumption correct that at expiration we do not need to close the bull call spread and the broker will make the final adjustment to our account?
Correct with SPX since it is cash settled, but with stocks or ETFs like SPY you may have to deal with early assignment if your short call is ITM, or your broker's automatic exercise of your long call resulting in share ownership if price is between the long and short strike at expiry. In those cases, you would need to decide if you wanted to manage the trade early.
If you allow to spread to expire, does the long call get sold automatically by your broker?
What I’ve learned from this video is that trading options is too damn confusing for me 😂
This intermediate level. Start with call contract and put contract first
It is a bit like learning a foreign language... stick with it and you will begin to understand the vocabulary and grammar of trading options.
What would help if you could tell what Delta you are choosing to buy ITM calls. Seems like for bull call spread Delta must be around 80 or higher to be able to make money for close to 30 DTE, also what value of IV you look for when initiating ITM bull call spread?
The delta values are shown in the options chains they show in the video
The IV values are also shown.
Thanks Guys ✨
But how do you choose the strike price
Just signed up for the webinar on Sunday. I think I need to start there.
Is “Bull Call Spread” have time decay? (my worst enemy) 😅
What is the minimum ammount to start off?
with the sale of a call, are you not obligated to buy the underlying stock to sell at expiration? or does being in a "Call spread"/"Call Vertical" negate that? is there no assignment risk?
With the sale of a call you are not obligated to buy the underlying stock, you are obligated to sell it if the call expires ITM or if you are assigned early. You might be thinking of the case where if you aren't approved by your broker to sell naked calls, you would either need to own 100 shares per call sold to cover the short call position, or you would need to be long a call to offset the short call risk. Yes, the call spread negates having to own shares to cover the short call risk if you aren't approved to hold a naked short call position in your account. There is no assignment risk in the example, SPX, since they are European style options. However, in an ETF like SPY, which are American style, yes there could be assignment risk but it would be offset if both calls expired in the money. Or, if the short call were in the money and someone exercised their right to buy shares and you were assigned shares early you would have your long call in place to offset it and could sell it back to the market to capture any extrinsic value and purchase shares to close the short shares position (you could also exercise your long call but would be forfeiting any extrinsic value in the long call).Owning long shares would be an issue if price were between the long and short call at expiry. You would have to decide if you wanted the shares or just close the trade before it expires.
With an index fund like SPX, there is no risk of assignment, as there are no shares. It is cash settled. With stock or ETF - it depends of your settings. If you have cash only account and trade options with (let say) SPY, for every single short call (or put), you might need 100x ~$450 = $45'000 in capital available. If you have a margin account, it is different - much less cash requirement.
Awesome 👏 🙏
Typo on the "Unrealized Loss" slide. You've got "4350" and "4450" reversed.
I felt the same way. but not sure. I left a question in the comment to get reconfirmation.
Why not rather selling puts.
❤
Guys, it's a picture of Manhattan in the back. It's not Manhattan. Why not show their real office. They're selling courses. This is bull
Also , It would be great to do this with a smaller valued stock, so we see how this applies to a smaller account
Nice video. Thank you much.
Us30
🙏💛💪☕
How much collateral is needed to run these spreads?
The difference in length of the two strike prices.
Actually, it is a debit spread, what you pay is the max loss
@@Kauffman578 thank you. That was my doubt