Selling Credit Spreads: A Beginner's Guide to Generating Passive Income and Rolling Credit Spreads
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- Опубліковано 13 кві 2022
- Are you looking for a way to generate weekly or monthly passive income from the stock market? Selling credit spreads may be the answer you're looking for. In this video, I'll provide a step-by-step guide on how to sell credit spreads and create a consistent stream of income.
I'll cover the basics of credit spreads, including how they work and the potential risks and rewards involved. You'll learn how to select stocks for credit spreads, calculate potential profits, and manage your positions. I'll also show you how to roll your credit spreads, which is an important strategy for maximizing profits and minimizing losses. Whether you're new to options trading or an experienced trader, this video will provide you with valuable insights on how to sell credit spreads and generate passive income.
Also - Watch now and learn how I use an options scanner to find high-probability options opportunities!
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DISCLAIMER: All information and data on this UA-cam Channel is solely for entertainment purposes. I'm not a financial advisor, nor licensed in any way to provide any financial advice. The information herein is based solely on my personal opinion and experience. All investments hold inherent risk, and the information provided on this UA-cam Channel should not be interpreted as any kind of guidance, recommendation, offer, advice, or suggestion. Any ideas and strategies discussed on this channel should not be implemented without first considering your financial and personal circumstances or without consulting a financial professional.
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I’m so glad I found your channel. Yours is the first video on credit spreads that I’ve been able to understand. Subscribed.
Excellent video with great illustrative explanations. Love the options screening tool. 1st time I heard of it.
This video is absolutely magnificent. Great job Rick!
Glad you liked it!!
Amazing video! Congratulations for the presentation and clarity of the concepts. I just started looking at options and the video was an eye opener for me! I'm just reviewing vertical spreads and this video gave me a very comprehensive overview of the way forward. I really liked the MSFT example and the use of the scanner. I would like to see more videos about your strategies in options and more videos of using the scanner! I will review your channel in more detail and of course, a new follower and subscriber! Thanks.
I just saw this now - thank you for watching! I really do appreciate it ;)
This video is the most comprehensive one, which gives all the information from the beginning till the end of an options trade. Only valuable information and no bullsh*ts. Great content and great value as always. Thank you
Thank you! I really appreciate the kind words. Was there any particular “main takeaway” from the video that stood out?
Love your videos! Thanks for everything
Thank you for watching! Any ideas you’d like me to cover for a future video?
Very well explained. Very informative video. Thank you.
Glad it was helpful!
Geat video, thx! What do you think of doing these spreads with 0 DTE SPX?
Great presentation, thank you Rick
Thanks for the kind words!!
Thank you easy to understand…
Great video!
On TD the min margin is 2000 to open account question is when doing credit spreads if I open a spread say 350 max risk with 2000 account what happens if account dips below to like 1800 during the trade swings will I be in margin call since I'm below the minimum 2000 or is it ok intratrade as long as you are over 2000 once you close the contract? I can't imagine they would have a 2000 limit only to margin call you at 1999 that wouldn't make much sense. Trying to see if I can grow account from 2000 or if that is impossible and need to start with 2500? Thanks
Excellent video. I'm definitely going to follow along and try to learn some more from you. I do have to point out though, if you really want me to follow your advice and respect your advice then you need to check your spelling. Under your seven rules you misspelled the word "spread". Sorry, my mother was a school teacher and never stopped doing that to me. 🙂 I do still promise, to keep watching you and learning some more.
Great video. I learned alot. I have been doing well selling puts on Tesla. I am okay to own Tesla if get it my price. I want to start doing credit spreads and would start with the put credit spreads
You have a strong point making on keep it small, safe and collecting the premium on high percentage chances options. Cant go wrong like that and if you do, you do not lose your panties on 1 trade. The cherry on the cake is the Samurai Option software, it is cheap and reviews are good. It helps to narrow down the stocks for the spread you want to go for. Thanks, very helpful video, I am going to subscribe to your channel
Great tutorial. Does the screener include a parameter to exclude items with earnings announcements? Thank you so much!
I just saw this now - thank you for watching! To answer your question, the screener most certainly does!
Excellent presentation! I have watched many and your style and content best fit my learning. I started out with spreads not fully understanding the risks and quickly moved into Iron Condors/Butterflies. Big mistake. I was partially assigned (after hours) on one of my Puts and ended up having to use all of my margin and plus some. Fortunately there was a holiday Monday so it gave me an extra day to figure out what I was going to do. Also, by Tuesday the price went back up and I was able to sell without much damage except to my psyche. Your video keyed me into the need to manage the trade via closing. In your next video perhaps go through a few examples of closing out, when, how and the results. I’ll definitely be tuning into your future content. Thanks again!
Thanks for the kind words! And yes- I totally agree- will add some “closing the trade” examples! Have you subscribed on my website rickorford.com by chance? I can quickly whip up a exit strategy guide there!
Nice!
Great video
Thanks!
table at min 8:37 ; does someone can explain to me : in the row Max return I understand there is 58 % chance of keeping max return, and Max return is 135 but what is next number100? ; the same in the following row : what is the meaning of 279%, anothe questions; what is SPX Delta ? How margin impact is calculated? How Commission % is calculated ? What is minuivest and how is calculated.? Thanks very much
Nice
Great video, what is a good % chance of profit do you recommend?
My target is 80% chances of profit.
Hi, where is the link for Samurai website?? kindly share,thanks
Sorry for the delay! rickorford.com/samurai
Great channel. On a vertical put spread, you talk about the risk of getting. if I have a long leg to protect me, how do I get assigned?
Thanks for the kind words! The holder decides whether or not to exercise the option. So, your short option will be the one “at risk” of assignment. Hope that helps!
@@RickOrford doesn't my long leg exercise at expiration and sell the shares?
Nope - long options don’t (generally) auto exercise. If you think they do, please contract your brokerage as they may have an auto-close mechanism in place if your option expires in the money!
I love the ability to trade without having to set aside $10,000 or much more to make a $100 premium. Further, if I am assigned, I can use a covered call to repeat the process.
But, wont I have to set aside enough money to buy the stock? Of course I will but that wasn’t covered and that should have certainly been discussed!!!
Otherwise, I love all your videos! Your explanations are easily comprehensible!
If you're assigned, the maximum risk (liability) is the difference between the two strike prices, minus any premium you received * 100 * the number of contracts in play.
Can you please explain the stop loss in more detail. I use IB like you. I want to set a stop loss of 2 x the credit received. Eg: my short strangle trade I received -0.50 credit. Do I set my stop loss to -1.00 to achieve this? Thanks.
I believe so. Best to contact IB and ask for an “options trader” for assistance just to be sure. They will happily help you out!
Can you do a video that explains what Price to choose to EXIT a Call Credit Spread and Put Credit Spread with a 50% Profit before Expiration?
If the combined option price for a Call Credit Spread is .90 nd I want to EXIT with a 50% Profit, do I set my EXIT Price higher or lower than .90 to EXIT the trade with a Profit?
If the combined option price for a Put Credit Spread is .90 and I want to EXIT with a 50% Profit, do I set my EXIT Price higher or lower than .90 to EXIT the trade with a Profit?
I have yet to see a video explain and show step-by-step on ThinkorSwim how to determine what EXIT Price to set when placing an EXIT Order for a Call Credit Spread or Put Credit Spread before Expiration.
Stocks will go up.
how about you have one leg in the money and one leg out of money in the put spread on the expiration day ? scary
Great catch Liberty - Rick - how do you handle these situations? As if the whole trade were in the money?
When would I have to own the 100 shares of stock also?
Only if you’re assigned! That could happen at any time.
This one of the best videos on the credit spread I have ever seen. However after seeing the whole video I find it just to risky.
Now if one is assigned and the stock is worth say 250.00, does that mean if one sold one contract that one would have to buy 100 shares at 250.00, or $ 25,000.00?
So in this example the risk is really 25K and not say 350.00 or something. Yes once it goes into the money it would only be assigned but it could go there just for a few hours and your were not watching it at the time. So in a way this is a very dangerous risky business.
The risk in a credit spread is the difference between the strike prices * 100 * the number of contracts MINUS any collected premium. So if the strike delta is $1.00, and you collect $0.30, then the maximum risk is $0.70 or $70 per contract at expiration.
@@RickOrford Thanks for your reply and info. I do understand the max risk that one can lose but what I do not like is the risk of being assigned and forced to buy stock that one does not have as also in not enough money to buy say the stock.
@@erwinerwin1245 Totally understand. These trades do need to be managed. So, you could always exit the trade before a stock crosses a certain point!
@@RickOrford Thanks again and I agree that one especially with a small account would want to watch it daily and maybe buy back the option that one sold if it is going into the money.
It seems to me Mathematical Expectation applies here. Is there a screener that can show me spreads with a Positive Mathematical Expectation? Let me explain.
ME = (Probability of Profit x Profit) - (Probability of loss x Loss)
This needs to be positive for it to be a good trade.
In scanning these trades and making this calculation I have *never* seen a +ME trade.
By definition that means these trades are long term losers... same principle Vegas operates on.
What am I missing?
Of course the equation also tells you other things. Like number of losers to winners, etc. So you would also want to search on that as well, picking ME's that are the greatest for your preferred win rate.
There is! rickorford.com/samurai
@@RickOrford So does Options Samurai calculate the ME and allow me to sort on it, so I can quickly identify the +ME trades quickly?
How is the probability of profitability calculated? And how can you know what that probability actually is? That it's actually accurate?
Seems to me a +ME and an accurate market forecast are needed. There's options and underlying strategies that will be profitable for any predicition you care to make. But for it to work out, your market sentiment and ME caclulatiions actually have to be accurate vs. the reality. Otherwise one is simply making guesses, true?
Sorry for the late reply- didn’t see the message until now. % of profitability is calculated based on IV, Strike and Time to expiration. “trader friendly”
Brokerages like IB and ToS offer this data for trades you are about to execute. But, the cool feature in being able to scan the market for opportunities!
Typically options screeners cost almost $2000 or more per year, that is not okay for retail investors, you should have stated the price since you are canvassing for them.
You misspelled spreads
At the beginning of the video, why are you keep saying "selling credit spread"? I think you should say "setting up a credit spread."
When you receive a credit, you’re said to be short, or selling. One could say “setting up”, but it’s technically incorrect. Though, I doubt anyone would correct you 😂
@RickOrford you are selling a call/put and buying a call/put.
In a bear call credit spread, you’re selling a call, and buying another with a higher strike price. Similarly, in a bull put, you’ll sell one put and buy another with a lower strike. Either of these strategies will generate a credit! Hope that helps.
@@RickOrford so, you are not just selling. You are also buying. That was the point I was trying to make. The combination of this selling and buying is something that I call setting up.
@@Reza16888 Correct - you're buying and selling a call, or a put. We say "selling" or "shorting" to indicate a credit, and "buying" or going "long" to indicate a debit. If I heard someone saying "setting up a credit spread", the "credit" would be the key.
? V V v !
This is chinese to me...
It's cringe worthy when you call premium sold "income". In trading there are profits and there are losses, that's it
Premium is not profit, it is income. Profit/loss is an increase/decrease in the underlying value of a stock, or other instrument.
How can I sell long roll option on RH plz
Excellent video!
Thanks!!