i have been using these for the last few weeks with encouraging results. I have a question. How do you determine the best expiration dates (I only use stocks not indexes)? If the date is too far in the future, the short call and long call are too close in value generally capping profits less than the max. I have been doing about 10 days out usually, but have not taken one to expiration to see how it handles.
The expiration for me depends on what chart time frame I am looking at for the move to occur. If it is a short term move I go with a near term expiration so that way the spread can gain in value more quickly for that max profit. If I am looking at a longer time frame then I may go further out in time. The expiration that is further out may take more time to get a profit (and certainly the Max profit potential) but it will also not lose value as quickly as the near term expiration trade if the underlying price moves against you.
@@Allison_Trades I understand your reasoning. I have been working with this strat the past few weeks and I think I am leaning toward shorter expiration horizons. The reason for this is I am hoping to catch an imminent move using spreads to trade stocks out of my price range normally. Limiting the risks with the debit spread reduces my concern with the trade going the wrong way, and the shorter time frame helps hit the max profit target.
Hey great video thanks! I was wondering why a debit spread would remain the same price even though the underlying stock price is going in the direction desired?
I just started to use debit spreads, so are they familiar with credit spreads where you get max profit at expiration? My first mistake with a debit spread the first time was opening a few ITM, needless to say I got assigned and I was confused as to why, obviously it was because they were ITM and the stock had gone my way. So if I say that X stock will not touch say $20 by X expiration date, do I lose my money at expiration if it doesn’t touch $20 or do I get max profit? I know that if it goes past $20 I would get assigned at expiration or even worst, early assignment, but what about the stock not getting to a certain price?
From Allison: First off, a Debit Vertical Spread is very similar to a Credit Vertical Spread (just look at it like the opposite). The Debit you paid is the max risk, the difference between the spread width and the debit paid is your profit potential. Instead of the trade being out of the money for max profit potential like a credit spread, you want the debit spread to be in the money for that max profit potential. With that being said, if you are in the money on a Symbol that is not cash settled, then there is a risk of assignment, especially if you hold the strikes through expiration. If you start with your debit spread strike both being in the money, it means typically 1. You have a higher Risk vs Reward on the trade 2. There is a greater probability of getting assigned. If you hold the trade through expiration, especially if only part of the trade is in the money, then you will be assigned. Oftentimes, I personally like to get debit spreads right at or slightly out of the money. This creates a better risk vs reward and as the trade ideally moves into the money I can look to take it off before expiration for a profit. This will help keep me from getting assigned, but still allow for a potential profit on the trade.
i have been using these for the last few weeks with encouraging results. I have a question. How do you determine the best expiration dates (I only use stocks not indexes)? If the date is too far in the future, the short call and long call are too close in value generally capping profits less than the max. I have been doing about 10 days out usually, but have not taken one to expiration to see how it handles.
The expiration for me depends on what chart time frame I am looking at for the move to occur. If it is a short term move I go with a near term expiration so that way the spread can gain in value more quickly for that max profit. If I am looking at a longer time frame then I may go further out in time. The expiration that is further out may take more time to get a profit (and certainly the Max profit potential) but it will also not lose value as quickly as the near term expiration trade if the underlying price moves against you.
@@Allison_Trades I understand your reasoning. I have been working with this strat the past few weeks and I think I am leaning toward shorter expiration horizons. The reason for this is I am hoping to catch an imminent move using spreads to trade stocks out of my price range normally. Limiting the risks with the debit spread reduces my concern with the trade going the wrong way, and the shorter time frame helps hit the max profit target.
Bought not bot. Just a suggestion. Thank you for the great content and explanation of the spreads.
Thank you
Hey great video thanks!
I was wondering why a debit spread would remain the same price even though the underlying stock price is going in the direction desired?
Could the implied volatility have changed?
Spoken very well
Is there pin risk on SPX options?
I just started to use debit spreads, so are they familiar with credit spreads where you get max profit at expiration?
My first mistake with a debit spread the first time was opening a few ITM, needless to say I got assigned and I was confused as to why, obviously it was because they were ITM and the stock had gone my way.
So if I say that X stock will not touch say $20 by X expiration date, do I lose my money at expiration if it doesn’t touch $20 or do I get max profit?
I know that if it goes past $20 I would get assigned at expiration or even worst, early assignment, but what about the stock not getting to a certain price?
From Allison: First off, a Debit Vertical Spread is very similar to a Credit Vertical Spread (just look at it like the opposite). The Debit you paid is the max risk, the difference between the spread width and the debit paid is your profit potential. Instead of the trade being out of the money for max profit potential like a credit spread, you want the debit spread to be in the money for that max profit potential. With that being said, if you are in the money on a Symbol that is not cash settled, then there is a risk of assignment, especially if you hold the strikes through expiration. If you start with your debit spread strike both being in the money, it means typically 1. You have a higher Risk vs Reward on the trade 2. There is a greater probability of getting assigned. If you hold the trade through expiration, especially if only part of the trade is in the money, then you will be assigned. Oftentimes, I personally like to get debit spreads right at or slightly out of the money. This creates a better risk vs reward and as the trade ideally moves into the money I can look to take it off before expiration for a profit. This will help keep me from getting assigned, but still allow for a potential profit on the trade.
@@SimplerTrading Thank you