Basic Option Trading: Verticals
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- Опубліковано 4 чер 2013
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Absolutely correct. You only get that max profit if it is there at expiration. Else, there are reasonable probabilities that the stock could move in either direction, reducing the value of the spread if the stock falls. The more time left in the trade, the less of the intrinsic value you capture. The closer to expiration, the more intrinsic gets captured in the pricing.
I have watched this video six times over the past 9 months. Today it finally clicked.
Learning from such a champ like Bob won't gonna be peice of cake .
-peace(ua-cam.com/video/SyF20ZHShmE/v-deo.html)
lmao
same i dont get this... and ive been trading stocks for like a year now
Okay.
This is my first time
love your videos...I learned so much because of tasty trade years ago and I stuck around....total life changer....I thank you guys with all my heart man..thank you dude
Dont you guys age.. just started watching and thought this was a recent video...finding an entire new level of option info. Appreciate it..
Loved this!! I had been out of the stock options game a bit, that or doing my own thing but couldn't get certain strategies to work consistently; appreciate the insight and analogies guys
I love the speech about why people seemingly refuse to educate themselves about investing, and just hand money over blindly to others. I suppose they have broadly accepted that they 'cannot' survive in the market and instead let someone 'trained' do it. Meanwhile, what skills do they have that enable them to really choose the correct 'trained' person? I expect the only reason they have to trust any of them is if they are paid via a portion of their returns.
Financial advisors are just the stock market equivalent of car salesman. They don't care about you.
Great Stuff. Glad that I finally found someone saying things that I've only previously heard inside my own head.
A calendar spread is really good to use as well. It can pay off the premium of the longer long call or longer long put.
Very good video, love the enthusiasm near the end, they don’t want anyone to make money in the markets I believe that’s why the feed is bs headlines!
You were spot on with this one!
Question I put on my first Bull Call Spread and the stock ran up and hit the strike price I sold. I thought I would hit my max profits there but it was about half of what I should of made. I am guessing the max profits come in if I hold until expiration and let the short call decay more. Am I thinking right?
Hey Tom its May 2021, and by watching this video I can see how much weight you have lost. Thank you guys for all your help.
Best video about verticals
What are the mechanics of the high probability Credit Spread you didn't mention as you use to mention for Strangles like IVR About 80 or 50? So what's for Credit put Spread or Call Spread?
I have done a simulated analysis by using historical data on apple from march 1 2018 to feb 1 2019, buying at the money apple calls and selling out of the money calls using $5 wide strike. I used $2.50 as the debit on each monthly trade. Here are the results. 5 wins, 6 losses and 1 breakeven. That works out to be net loss of $250 for one year trading 1 contract excluding commissions.
How far out (DTE) did you go on each simulated trade, and are you sure the cost would have been 2.50 on each, did you hold to expiration, did you just trade through earnings? Many factors come in to play here. For example you can be up by 40-50% only for it to lose at expiration, had you taken the trade off at around 40-50% it would be a winner, ploughing through earnings can easily be a loser on a debit spread as volatility will drop significantly which hurts a debit spread.
Hey great video, i just have a question. when you trade a vertical spread, does it behave like selling an opton or like shorting a stock? like as in once i sell it, is it up to me to buy it back or its depends on the buyer of the vertical to sell it back?
If you sell it it's up to you to close it.. not the buyer..the buyer might have already sold it to someone else.. who knows..
wow, i keep watching this, love it
No. A straddle uses one put and one call (at the same strike price). Vertical spreads use the same type of option; i.e either two calls or two puts, at different strike prices. (A calender spread (which is not a vertical spread) uses two options at the same strike price but the expiration dates are different)
thank u i was confused on that part
Love the program.... thanks TT. Anyone know of an Options networking group here in Chicago?
what do you mean by "duration"?
Love these guys
Your videos are awesome, and you seem to do excellent research! So, I have question that "not one self proclaimed- stock expert" has addressed! The question: Who or what or entity or entities caused Intel stock to plummet, specifically after the bell 7.24.2020?
Hello tastytrade staff,
I was wondering what would happen though if I bought a bear put spread and my short put went ITM and I received a assignment but don't have the capital to buy and deliver the shares of say a high priced stock? I know the long ITM put is suppose to offset this but how do I deliver something I don't have the money to buy. Thank you.
Eric M
Eric Matthew If you are assigned on a short put option, 100 shares of the stock will automatically be placed into your account on margin. However, if your account does not have sufficient funds to hold the position, your broker will require you to close the position immediately. You could do this by just selling the shares in the open market, or by exercising your long put. Hope this helps!
+Eric Matthew since the put is protecting the position, the actual risk to your portfolio is identical to being short the call. so at least nothing bad will happen. this once happened to me and i ended up short a few 100k worth of stock in an IRA (cant be short in that type of account). I got a call from the trading desk at think or swim, they gave me the option of covering the short or exercising the long strike. I exercised and the net effect on my portfolio value was equal to closing the trade normally
What happens if I sell bear credit spread and the underlying falls between the call I sold and call I purchased? I don't have 100 shares of underlying to sell. My purchased call is OTM.
I like the idea of trading verticals, but how do you know which stock is best to trade it on?
Just market watch and see whats hot per say and see how long has it been supported/resistance if you see its booming do a few days per stock and soon you'll find your own strategies that work
Hey guys, love your show. I come home everyday to catch up on your clips. I'm new to options, thanks to you guys, but I do have a question. In general, is the max net credit received always approximately equal to the statistical chance of loss? If we're only collecting .30 on a 1.00 spread and our probability of losing is 30%, then we're losing even before we consider commissions. Am I calculating something wrong here (I am new), or is this a function of current IV? Cheers!
@@junkjunk2493 I didn’t get a reply, however Tastytrade has produced a ton of content, including this topic, since I asked it. Although I’ve stepped away from watching the show the past couple of years, my understanding of the Tastytrade way is that implied vol is generally greater than actual vol - there is a small spread to be captured despite the fact that options are theoretically priced to the penny. This spread (premium) can be captured by a variety of mechanical trading strategies, managing winners, and the law of large numbers. There are a few scholarly papers that attack this question directly and they refer to this as something like “excess risk premia.” I can’t recall where I found those papers - a little time on Google should solve that. Check out the Tastytrade website for past episodes as well - there’s a ton of content.
@@junkjunk2493 no longer trading options. I still believe that the opportunity is there but it’s too expensive (open close fees, carry fees, account fees, etc.) in Canada to trade options as a typical retail investor. I’m waiting for Tastyworks to come to Canada - hopefully they do.
@@junkjunk2493 no prob, and happy new year to you as well!
is there risk of assignment when you are doing VS either puts or calls ?
Only if the short option is ITM, and extrinsic value is very low. Otherwise, it doesn't make sense for the option owner to exercise in most cases.
I admire the furiosity in this video
could you explain more about the 0.33 on a 1 dollar spread? why does it make sense to be 1/3?
Here's a segment on this:
www.google.com/url?q=www.tastytrade.com/tt/shows/options-jive/episodes/credit-strikes-for-spreads-why-13-of-width-works-06-16-2016&sa=U&ved=0ahUKEwjoy-ux_rjgAhVkw4MKHUu5DKwQFggOMAM&client=internal-uds-cse&cx=015477303216471237373:u_cnlyqjhzi&usg=AOvVaw2t35wcwWteFZPsWFYzpATc
When trading a long call vertical spread, and it expires in the money, will it just become worthless if you do not have the money to buy 100 shares? Or will you just gain the max profit?
Yes it will because of this your broker will close out the trade before market close if you don’t (only if you don’t have enough capital to Exercise)
I enjoyed watching the video ) However, this question remains : when I sell an option I place a bet against "the house": who is the "house", The broker ? Obviously, the house, whatever entity it is, knows exactly what is doing, just like a casino, so only the pro can beat the house, in my opinion. Is this "casino" concept correct? are we basically betting against someone that is hard to beat and eventually we lose money?
When you sell an option - someone needs to buy it from you. So basically, you are playing against the buyer.
Fees from this trade go to various sides, but most to the broker you use. Broker's interest is to process as much purchases from investors as possible to collect fees from opening and closing trades.
You beat casino concept by implementing trading strategy and maintaining money management. It becomes casino when you allow your emotions to control your decisions.
you're not necessarily betting against the buyer, because his long call could just be part of a spread as well. it's possible for you to both come out profitable. options aren't a zero sum game
Wow,, you'r guys awesome.. I love you
how far out from expiratio do you sell verticals? a week? two weeks?
We typically shoot for the monthly cycle closest to 45 DTE. That way if we're wrong, we have time to let the trade play out.
@@tastyliveshow what delta percentages are you using, is it 10-15 delta, 90% probability?
@@johnpenaflor2662 i think in one of their videos, they advocate about 20 or 30 delta.
@1:39 minutes, you said the concept of daytrading doesn't exist anymore. What do you mean by that?
Pinky Green fno is actually an instrument which is day trading under contract so day trading has ended very high margin intraday stock trading where higher risk were involved. Options is the new word now
Why take a credit that reflect at least 1/3 of the width of strike - instead take a credit 1/3 of the Max Loss - Would that more accurate Risk Reward Ratio ?
Good videos would be good to see an actual options trade on the site.
I don't get it if I want to buy AAPL why is it better to buy a call debit spread and not a single call option?
What do you mean by saying the concept of day trading doesn't exist anymore??
Coz I day trade. Could you elaborate pls?
Day trading by the old rules essentially has been shut down by the brokerage industry. Look up "Flash Boys" by Michael Lewis.
I have just had an ephany!
Hello Tasty Trade Staff,
Will verticals work on IRA Accounts?
ramsesdjandmusic Hi: Yes - since vertical spreads are defined risk trades, they are eligible to be placed in an IRA. Thanks for commenting!
@@tastyliveshow What about cash accounts? Maybe verticals can be used on cash accounts? Thx
Wouldn't naked puts/calls be "lower risk" trades due to their higher POP?
Lower POP & breakeven risk, but higher monetary risk because they lack the long option that protects the short.
verticals have a much higher probability of reaching max loss compared to naked options (max loss as a buying power reduction figure) as well
true max loss is higher than buying power with a short naked option, but even the probability of reaching the buying power as max loss is much lower than a spread.
This is the same as a "straddle" strategy correct?
no~ that is not correct.
straddle consists of two different types of options to earn money by the stock volatility (essentially double sided bet for the premium paid). This, vertical spread, is a defined risk, one sided bet.
Why do people “thumbs down “ these videos makes no sense
The day I'll go kamikazee I'll sell naked OTM options... At least I'll have odds paying for me. I'll play kamikazee being the casino. Not the player.
im too impatient, to hold, and i dont really like prolonged exposure to any market. Ill try one(on my wife's account :) with a couple days left until expiration and see what happens..
what?
this guy likes his voice
Who is bob?
Bob is Tom! It's a service that allows you to see all of Tom, Tony, Pete and Liz & Jenny's trades. Here's a link to more info:
www.tastytrade.com/tt/bob-the-trader
Basic Options Trading? This post is misleading...
This is the the simplest spread to learn, this is where beginner's start.
Day trader only for the rich 25k. Rules and equality plz.
Spreads suck long term. Even if prices move in your favor you can get fucked.
Naked options or ratios only and keep extra cash for margin call
Is guy with hat rich?
Tom Sosnoff made ThinkOrSwim and sold it TD Ameritrade. Probably worth 9 figures.
He has been in the derivatives business for over 30 years, he is worth around 800 million.
He loves what he does for a living, he works with passion.... that's matters.