@@philipshawcross821 that's true, Every investor needs to carry out adequate research on the company and learn the company's fundamentals before investing.
@@artiganesh8032 The stock market is lucrative to invest in, however investing without the right skill and guide can go really bad, and I’ll advise you get a reliable brokerage for more profitable trades.
Best explanation I have found so far. One thing that seems to be missing from all of them however, are you only able to "cash out" at expiration? Can you expire the buy and sell at different times? Is there an advantage there? That is what I really need clarification on. Thanks!
If the underlying equity makes a fairly big move to the upside within a fairly short time after you purchase the bull call spread, you will most likely be able to liquidate your position for a decent profit.
Thanks David, can you link me to a video that explains more about getting out of this position earlier than expiration? That's the only part I don't understand. I sell covered calls, and closing those positions early would usually net me out pretty close to zero. This seems like a version of the covered call, so I'm confused how the bull call spread could be closed early for a profit.
It is true that cashing out of a covered call very early will wipe out most of the profits, since your 100 shares of stock went up but you'll also have to buy back the call option at a higher price than what you paid for it. Cashing out of a bull call spread very early can still be profitable, even with months left until expiration, if the price of the underlying stock/ETF/whatever goes up sharply. Try some paper trades or low-cost real trades and observe the behavior of bull call spreads vs. covered calls and I think you'll see what I'm talking about.
very good explanation I really admire you to two. But Kewin you said add those two which two you have to add to get 622? For me 1,824-1,202 is 622, is this different way to call it in option world? OR if it is stupid question than excuse me!
The concept is to consider returns as positive (+) or negative(-) value. Then add them together to know final return. If the final return is +, it is profit. If it is -, then it is negative. The first value is written as -1,202 (to represent loss) and the second one is written as 1,824 gain( could have written as +1,824 for clarity). When you add these, you get (-1,202) + (+1,824) = +622. Since the result is positive , it is profit.
Just starting to learn about options. Could someone please explain to me why his 185 CALL would result in a loss, given this scenario? I was under the impression that when the underlying increases, the call follows. I know I'm missing something here. Great videos. Keep them coming.
In my experience bull call spreads don't make great profits unless the option you sold expires worthless. Otherwise both options rise as price increase and you'll need to sell the bundle while the price is near the middle point between the two options in the strategy. As the price rises closer to the option you sold the ITM options becomes less desirable and not very efficient
Maybe i'm just missing something really obvious, but what about the high likelyhood of getting an assignment on that 195 call if if the underlying stock increases past 195 before expiration?
No! Using his scenario, you don't fiddle with it until expiration. (You would take action if the underlying price dropped very far below the long call strike price, of course.) At expiration, the short call expires worthless. You don't do anything. You just keep the premium you collected when you first set the spread up! As to the long call, if the strike is under the stock price, you will be exercised, meaning 100 shares (times the number of option contracts) will be bought from you at the strike price. At that point, you ordinarily would buy them back to close your new short stock position. Having said all that, the simplest and easiest thing to do is close both sides of the position at a good time before expiration, where the short calls have pretty much decayed away to near zero. Hope that helps.
what happens if you got exercised at 195 on scenario 2? you would need to buy the stock at $225 x 100 shares $22,500 and deliver at $195 , $3000 loss not including the premium received.
+Clayton D'Cruz Dont forget you have the long call under it at $185. Thats $4000 profit. That means its a net $1000 profit which doesnt make sense to be exercised. In other words, these position will not be exercised if the stock ends up above $195. Anytime you have a debit position, when it makes money you need to close it. Dont let it expire. On the other hand, when you have a credit spread position, you could let it expire to when its making money for you.
One important thing he fail to mention is that for the call you wrote (sold) some (maybe all) brokers require that you have in your account 100 shares of the stock, so if it is exercised, the stock shares will be available to sell to the buyer, at the strike price of 195.
FaraJi: Most brokers will require a margin of the difference in strike prices. In this example, 195-185=10x100=$1000.00. Other brokers may require a margin of $1000-the debit amount of 378=$622.00
@@PicknTime I've never heard of this in my life. You need to use another broker if he's requiring foolishness like that. Your maximum risk is the total premium paid in, because if you're exercised, all the broker needs to do is liquidate the same number of long calls to cover the short ones.
my 1st question is how do i know the price of the stock to move to , to break even ? say the current stock price is $450, i bought the call strike price of 440 and sell the call strike price of 460.. say at the time of expiration the stock price is at $445 , do i make money ? break even ? or at a loss ? And 2nd question is can i close both position before expiration as long as it hits my target price already and i can see that im already up in profit ?
1st question: Just compare what you paid to open the position to the final intrinsic value (in this case $500). 2nd question: It’s a lot harder to exit early with a gain than it is with a simple call, which is something I think they should have covered. You can exit, but you are unlikely to have a gain, because the strategy depends on the time value of the call that you sell going to 0. When the expiration date is still far out, the net value of the spread does not gain very much when the stock moves, and you have two bid-ask spreads to overcome.
Very nice video. Thank you. I am new to options and scenario 1 confuses me completely. For scenario 2, when stock price goes up to $225, $185 call is up to $4000. I got it. But could anybody please explain why, when stock is at $195 (from initial $184), the $185 call went down in price from initial $2202 to $1000?
That's what's throwing me as well--if your 184 at the money call moves into the money, you don't suffer a loss, the cost of the option moves up as well
I know you asked a year ago, but this would help others. It's a loss of $1,000, because you PAID $2,202 for the option, and now it's worth $1,000 (because $10 intrinsic value *100 shares). The price of the option is less because when you buy the option, you pay for theta (or time decay). At expiration, there is no time decay left, just the value of the option (either in-the-money or out). The comment from STG is correct that that cost of the option moves up. Say, the day after you bought the option, it went up to $195, your $185 long would probably indeed be worth $12,202, etc. Sounds yummy, except your $195 short would also shoot up at a similar rate handing you the max profit (the difference between the cost of a $195 and a $185). That's why he mentions in the beginning "oh, people only want to buy options in case the stock skyrockets." Yes, you "miss out" on huge money if Tesla makes a huge move like that. However, these instances rarely happen. With TSLA and NFLX, their prices are so volatile, it's more likely. However, in the long run, you'd probably lose money trying to 'guess' the size and direction of these swings. You might hit a few, but miss on others and lose your entire premium.
since you paid a premium of 2202 dollars, in order to make money from your Long Call, the stock price should go up above 185 + 22.02 = 207.02, in Scenario 1 - the stock price at 195 was bellow the breakeven price (207.02) but in Scenario 2 - stock price at 225 you get money since now you are 18 above your breakeven.
Biggest lesson i learnt in 2024 in the stock market is that nobody knows what is going to happen next, so practice some humility and low a strategy with a long term edge.
Nobody knows anything; You need to create your own process, manage risk, and stick to the plan, through thick or thin, While also continuously learning from mistakes and improving.
Uncertainty... it took me 5 years to stop trying to predict what’s about to happen in market based on charts studying, cause you never know. not having a mentor cost me 5 years of pain I learn to go we’re the market is wanting to go and keep it simple with discipline.
Certainly, there are a handful of experts in the field. I've experimented with a few over the past years, but I've stuck with ‘’Julianne Iwersen-Niemann” for about five years now, and her performance has been consistently impressive.She’s quite known in her field, look-her up.
I still feel just buying the call or put at the right time can not you the same or more profit. It seems like only a side ways market would benefit greatly from this
1) that assumes you can time the market 2) just like the Earth is flat over all but long distances, most assets only move horizontally (relatively speaking) over all but very long time scales. Vertical motion is newsworthy because of its relative rarity. 3) time decay. Even if you predict the moves directly, even if your underlying asset moves in the exact direction you predicted/want, even if it’s below your put strike or above your call strike, time decay can and will eat your gains into a loss.
One of the best, possibly the best stock strategies around.
only downside is when IV goes up it goes against you
It's best to acquire profitable stocks that has potential of generating greater returns at least twice what was staked.
One of the key reasons why people do not make money from stocks is that they do not put the initial efforts before investing in the share.
My portfolio is actually nothing to write about, I’ve acquired lots of wrong stocks and made lot of trade losses, I hope it gets better this year.
@@philipshawcross821 that's true, Every investor needs to carry out adequate research on the company and learn the company's fundamentals before investing.
@@artiganesh8032 The stock market is lucrative to invest in, however investing without the right skill and guide can go really bad, and I’ll advise you get a reliable brokerage for more profitable trades.
I’ve been considering getting a professional, you got any recommendations?? @kumar
wow what a great explanation. its so clear now. i will start doing this strategy as soon as im a level 3 clearance. ty so much kevin
Excellent explanation for an option neophyte like myself. He gives great examples and slow talking speed. Bull Call spread!
How about buying a SPY deep itm (130 strike) long call say next year exp. and sell slightly otm weekly (290 strike) calls? is that a good strategy ?
Hi. Nice vdo. What are the risks involved in doing a Bull call spread with In the money or Deep in the money options😎😎😎
What about deep in the money call spreads? compared to the out of money call spreads, which is better?
terry, loosen up man!
Best no BS blabbing version of explaining this strategy. Concise and straight to the point.Thank you!
keep in mind he is talking 1 option (100 shares) if you do 10, then you see good money.
How do you know, WHEN to place the trade...? And WHEN to exit the trade once confirmed...?
Best explanation I have found so far. One thing that seems to be missing from all of them however, are you only able to "cash out" at expiration? Can you expire the buy and sell at different times? Is there an advantage there? That is what I really need clarification on.
Thanks!
If the underlying equity makes a fairly big move to the upside within a fairly short time after you purchase the bull call spread, you will most likely be able to liquidate your position for a decent profit.
Thanks David, can you link me to a video that explains more about getting out of this position earlier than expiration? That's the only part I don't understand. I sell covered calls, and closing those positions early would usually net me out pretty close to zero. This seems like a version of the covered call, so I'm confused how the bull call spread could be closed early for a profit.
It is true that cashing out of a covered call very early will wipe out most of the profits, since your 100 shares of stock went up but you'll also have to buy back the call option at a higher price than what you paid for it. Cashing out of a bull call spread very early can still be profitable, even with months left until expiration, if the price of the underlying stock/ETF/whatever goes up sharply. Try some paper trades or low-cost real trades and observe the behavior of bull call spreads vs. covered calls and I think you'll see what I'm talking about.
very well explained
What about the margin paid to sell the Call doesn't that add your capital amount ?
very good explanation I really admire you to two. But Kewin you said add those two
which two you have to add to get 622? For me 1,824-1,202 is 622, is this different
way to call it in option world? OR if it is stupid question than excuse me!
The concept is to consider returns as positive (+) or negative(-) value. Then add them together to know final return. If the final return is +, it is profit. If it is -, then it is negative. The first value is written as -1,202 (to represent loss) and the second one is written as 1,824 gain( could have written as +1,824 for clarity). When you add these, you get (-1,202) + (+1,824) = +622. Since the result is positive , it is profit.
Thank you. Was confused at first with this strategy. Understand it completely now.
How about buying an ITM call and sell OTM call
If tesla goes up a lot past his short call, doesn't he get assigned the stock and has to buy?
Can you sell both options today when it is at $202 market as it is on that day?
Kevin is a juicy educator.
Just starting to learn about options. Could someone please explain to me why his 185 CALL would result in a loss, given this scenario? I was under the impression that when the underlying increases, the call follows. I know I'm missing something here. Great videos. Keep them coming.
Sorry, I was considering a different scenario with results of another. Scenario 4 would clearly present a loss on the 185 CALL.
In my experience bull call spreads don't make great profits unless the option you sold expires worthless. Otherwise both options rise as price increase and you'll need to sell the bundle while the price is near the middle point between the two options in the strategy. As the price rises closer to the option you sold the ITM options becomes less desirable and not very efficient
Excellent video
Excellent explanation, thank you
Tesla at $184, I wish. @ 4:48
LOL IKR I would go all-in if I knew it would hit 1900
I got it last June for $182. And I sold in the 200s. Still kicking myself lol
Guys this is pre split. If you adjust for 2014 TSLA was around 32$ XD
Great video, thanks
Thank you very informative fully .I now fully understand strategy after you went through the scenarios.
Maybe i'm just missing something really obvious, but what about the high likelyhood of getting an assignment on that 195 call if if the underlying stock increases past 195 before expiration?
Thats a good scenario because you own the 185 call so you buy Tesla at 185.
No it doesn’t make a difference past 195 because you sold call at 195 so that cancels the gains out.
Grate video.. Thanks Mr Matras.
Do these positions need to be closed or just left to expire..?
every position with intrinsic value left should be closed at expiration or your broker will close it for you at market price.
great example by a grt research person in industry, thumsup
Well explained. Good examples.
really enjoyed this video. thank you!
Timing is everything.
I am a complete newbie - don't know why if the max profit is already achieved, why not close the trade, why wait until June?
Nobody waits until expiration. You can close whenever you want
But in order to realize your max profit, you would need to sell the long call and buy the short call back.
No! Using his scenario, you don't fiddle with it until expiration. (You would take action if the underlying price dropped very far below the long call strike price, of course.) At expiration, the short call expires worthless. You don't do anything. You just keep the premium you collected when you first set the spread up! As to the long call, if the strike is under the stock price, you will be exercised, meaning 100 shares (times the number of option contracts) will be bought from you at the strike price. At that point, you ordinarily would buy them back to close your new short stock position. Having said all that, the simplest and easiest thing to do is close both sides of the position at a good time before expiration, where the short calls have pretty much decayed away to near zero. Hope that helps.
@@youtubecritic8209 does that apply to the debit spread?
If Tesla is let say over 200 can you sell the spread before expiration date ?
YES
Hedge
Nice explanation. Thanks.
If money was a person it would look exactly like Kevin.
what happens if you got exercised at 195 on scenario 2? you would need to buy the stock at $225 x 100 shares $22,500 and deliver at $195 , $3000 loss not including the premium received.
+Clayton D'Cruz Dont forget you have the long call under it at $185. Thats $4000 profit. That means its a net $1000 profit which doesnt make sense to be exercised. In other words, these position will not be exercised if the stock ends up above $195. Anytime you have a debit position, when it makes money you need to close it. Dont let it expire. On the other hand, when you have a credit spread position, you could let it expire to when its making money for you.
One important thing he fail to mention is that for the call you wrote (sold) some (maybe all) brokers require that you have in your account 100 shares of the stock, so if it is exercised, the stock shares will be available to sell to the buyer, at the strike price of 195.
FaraJi: Most brokers will require a margin of the difference in strike prices. In this example, 195-185=10x100=$1000.00. Other brokers may require a margin of $1000-the debit amount of 378=$622.00
@@PicknTime I've never heard of this in my life. You need to use another broker if he's requiring foolishness like that. Your maximum risk is the total premium paid in, because if you're exercised, all the broker needs to do is liquidate the same number of long calls to cover the short ones.
How much can you make trading weekly options
sometimes 1000 %, with 1 or 2 days expiry
What a Great Video... Thank you!
So this is more of a limited profit but good source of realistic income
Would be better to undwerstand the interaction between profit and loss with a graph
my 1st question is how do i know the price of the stock to move to , to break even ? say the current stock price is $450, i bought the call strike price of 440 and sell the call strike price of 460.. say at the time of expiration the stock price is at $445 , do i make money ? break even ? or at a loss ? And 2nd question is can i close both position before expiration as long as it hits my target price already and i can see that im already up in profit ?
1st question: Just compare what you paid to open the position to the final intrinsic value (in this case $500). 2nd question: It’s a lot harder to exit early with a gain than it is with a simple call, which is something I think they should have covered. You can exit, but you are unlikely to have a gain, because the strategy depends on the time value of the call that you sell going to 0. When the expiration date is still far out, the net value of the spread does not gain very much when the stock moves, and you have two bid-ask spreads to overcome.
Very nice video. Thank you.
I am new to options and scenario 1 confuses me completely. For scenario 2, when stock price goes up to $225, $185 call is up to $4000. I got it. But could anybody please explain why, when stock is at $195 (from initial $184), the $185 call went down in price from initial $2202 to $1000?
That's what's throwing me as well--if your 184 at the money call moves into the money, you don't suffer a loss, the cost of the option moves up as well
I know you asked a year ago, but this would help others. It's a loss of $1,000, because you PAID $2,202 for the option, and now it's worth $1,000 (because $10 intrinsic value *100 shares).
The price of the option is less because when you buy the option, you pay for theta (or time decay). At expiration, there is no time decay left, just the value of the option (either in-the-money or out).
The comment from STG is correct that that cost of the option moves up. Say, the day after you bought the option, it went up to $195, your $185 long would probably indeed be worth $12,202, etc. Sounds yummy, except your $195 short would also shoot up at a similar rate handing you the max profit (the difference between the cost of a $195 and a $185).
That's why he mentions in the beginning "oh, people only want to buy options in case the stock skyrockets." Yes, you "miss out" on huge money if Tesla makes a huge move like that. However, these instances rarely happen. With TSLA and NFLX, their prices are so volatile, it's more likely. However, in the long run, you'd probably lose money trying to 'guess' the size and direction of these swings. You might hit a few, but miss on others and lose your entire premium.
since you paid a premium of 2202 dollars, in order to make money from your Long Call, the stock price should go up above 185 + 22.02 = 207.02, in Scenario 1 - the stock price at 195 was bellow the breakeven price (207.02) but in Scenario 2 - stock price at 225 you get money since now you are 18 above your breakeven.
I would rather sell bull put spreads and capture the premium. Much greater chance of success.
Risk/Reward...One is speculative while the other is growth oriented.
How to do that?
1,6:1 RR ratio sounds awful to me. Maybe it's just me...
S. L. You must never have taken a loss on long call or put
To understand the reason behind this strategy
does that mean u trade straight up calls n puts?
Biggest lesson i learnt in 2024 in the stock market is that nobody knows what is going to happen next, so practice some humility and low a strategy with a long term edge.
Nobody knows anything; You need to create your own process, manage risk, and stick to the plan, through thick or thin, While also continuously learning from mistakes and improving.
Uncertainty... it took me 5 years to stop trying to predict what’s about to happen in market based on charts studying, cause you never know. not having a mentor cost me 5 years of pain I learn to go we’re the market is wanting to go and keep it simple with discipline.
Could you kindly elaborate on the advisor's background and qualifications?
Certainly, there are a handful of experts in the field. I've experimented with a few over the past years, but I've stuck with ‘’Julianne Iwersen-Niemann” for about five years now, and her performance has been consistently impressive.She’s quite known in her field, look-her up.
She appears to be well-educated and well-read. I ran a Google search on her name and came across her website… thank you for sharing.
thank you thank you thank you!
Thanks!~
I feel dumber now
Amazing video. But what’s up with the guy on the left? He’s like a brick wall lol
184 dollars for TSLA wow!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
tsla options ridiculously priced even back in 2014 lmao
I still feel just buying the call or put at the right time can not you the same or more profit. It seems like only a side ways market would benefit greatly from this
not really, most options expire worthless,,
1) that assumes you can time the market
2) just like the Earth is flat over all but long distances, most assets only move horizontally (relatively speaking) over all but very long time scales. Vertical motion is newsworthy because of its relative rarity.
3) time decay. Even if you predict the moves directly, even if your underlying asset moves in the exact direction you predicted/want, even if it’s below your put strike or above your call strike, time decay can and will eat your gains into a loss.
Wizard division?? is this hogwarts?
I watch this a couple months ago and didn't really understand it. Until now.