Wider Options Spreads: 3 Benefits | Options Trading Concepts
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- Опубліковано 24 лип 2024
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5:55 there is some truth in it
Mister Sir probability of sex
It's all connected! 🤣🤣
I heard that too. That was awesome.
That moment when she finds out you're an options millionaire
@@BlackPanther4577 goals
mike's content may be available commonly.. but the way he presents , directly goes to my brain and sits with ease.... gives me lot of improvement ideas for my trade... this guy is a blessing to options community, i would rate his best instructor for options ever.
I agree. I like his methods.
He failed to mention 2 key downsides:
1. ROC will be much lower for wider iron condors
2. P/L Fluctuations will be more volatile for wide iron condors due to greeks being more pronounced
Mike missed a lot here - wider spreads mean also more downside risk, higher BPR, potentially lower ROC...higher PoP, more positive theta and higher credit received is only one side of the coin.
No it's not just higher credit. It's probably of profit, better breakeven points...
@@alexh1954 Right, risk management.
Thanks. I wish I saw this video 3 years ago...would have made more money...but you better believe I will be trading spreads this way going forward. Excellent info.
I have been looking for a way to really understand BEPs on spreads, and this video really cements the concept beautifully. Very very well done.
Thanks Pete!
I did wider spreads mainly to avoid Naked Puts, the only downside i find is i am unable to close the spread due to low volume on the lower strike side.
This is an excellent video. Very good points, and extremely well articulated
Well explained, thanks alot. Also commision wise, its much better to have wider sppreads
thanks Mike, this is very well explained
THANK YOU Mike! Excellent presentation.
Well Explained and Thanks for sharing... Naked Put is my favor Strategy, but it's unlimited risk , Wider wings Bull Put Spread is my favor now.....
This video is the best explanation I have found.
Excellent explanation! Great info.
Impressive key points.
9:00 mark. The best reason/argument for having wider spreads, starts to act like a Naked Option - with Defined Cost on the 10 wide wing. There will be a much higher Buying Power Reduction though, so small accounts will only be able to do a few at a time. Should save on Commissions, so another good reason.
👍....thank you..but even though you increase the credit on wider spread,you reduce your % return...vs narrower spread...excellent presentation...Thank you !
Correct, but max loss is realized at a much higher %, compared to a wider spread where max loss probability is lower, because it takes a larger move in the stock price. Either way, totally up to you!
As other people mentioned here, the ROC will be much lower for a wider spread, which is the trade off.
Great video and explanation!!!
Good , explained all.postibe things but wider spread will increse the potential of loss as well right??
Thank you thank you and thank you.
5:55 Reminds me of how we used to calculate things in college! LOL
14:20 Haha now I know they're just giving Mike a hard time!
nice video.. I have one question. as per your third exaple what will happen if i do not long that lower strike price put option..?
Hi Rajat - you would receive a higher credit as you're not paying for the long "wing". However you'd require much greater margin/buying power as you'd have a naked short put. On top of that should the stock price really drop say below 68 and you held to expiration you'd suffer greater loss as you'd likely be 'assigned' on the short put and end up long 100 the stock @ 78 whereas the long put at 68 would help you out should stock drop below 68. So think of the long put in a credit spread a kind of 'insurance' - hence it's called 'defined risk'. Naked short is undefined risk.
Thx for this review. But really, I don’t like naked call options basically because of the break even. It’s very hard to break even.
This seemed to be a good strategy if you have the luxury of watching your portfolio everyday. Can you set up stops to close spreads at certain points and if so can you do it on ghetto brokerages like robinhood or webull?
Interesting. How do you translate this to call debit spreads?
Excellent analysis. My question is when you have to buy back the put spread, the wider the spread (short being at same strike price) we would end up paying more than on a closer spread.
I was going to ask the same question. I saw the benefit of the premium differential of the wider spread. But the risk to close seemed more costly as well. So I'm assuming you may have to close these spreads more often to mitigate risk and protect your capital opposed to if spread was very narrow.
Always calculate your max risk. Shorter spreads have a smaller max risk. 5 points is 500$. Easier to get out if it goes bad, or sell the long put and roll the short put or take the shares and start selling calls
Great vid!
OTM credit put spread.How to adjust for intrinsic value? To benefit, should we place otm credit spreads?
I call this the Naked Spread! 8-)
I have a question. Will it be easier to roll the wider spread? That is what I see as beneficial about single options positions.
It will be easier to roll for a credit if the short strike is slightly ITM. Narrow spreads have much less wiggle room in this regard.
You run into rolling issues with low liquidity underlyings. It works well if your strikes are not breached and IV has not spiked. It is impossible to roll a spread with wide wings, if there is no one on the other side.
Quick question; In that last example with the widest spread. What would you say is a good width (in terms of standard deviations) for sale of naked put and for purchase of the naked put?
It's really up to you - there are trade-offs with every scenario, but if we're going wide and we want delta neutrality, we typically opt for the "dynamic iron condor" which is based off delta as opposed to strike symmetry. We typically sell the 20 delta options and buy the 10 delta options in that case, but that might not line up with our risk tolerance depending on the stock price. Totally up to you, but that's an example of what we look at.
I tend to go for +/- 1 std deviation to sell the call/put. In either case you're looking around the 16 delta strike to sell. If more aggressive then go 20 to 30 delta to sell. For the long wing I would not base that on StDev to be honest but more on risk/reward based on how much you're paying for the wing. Just my opinion, not saying it's right or wrong hope that helps.
What is the Rule of Thumb for cutting losses on Verticals even though its a defined risk trade and we kind of like to manage are winners at around %50 profit but what about losers in a time frame between 30-45 to expiration. And will it depend on Credit or Debit ?
Generally we don't do anything with them - if our assumption has changed prior to expiration we can get out for less than max loss, but at the same time if we lock in that loss, it could mean that we don't allow ourselves the chance for the spread to turn around and become profitable again, which is why we usually just leave them be.
one more benefit : Double down would cost trade commission. As number of contract increase you pay $6.50 per contract on TOS. Going wider would save you $6.50 and increase your probability even further !!!
MIKE SIR
THIS REALLY AMAZING video
can you explain the situation where max loss is less than net credit?
Is there a practical limit as to how wide the spread should be, assuming a large account of greater than $1,000,000?
5:55 my probability of s..
Now that's a tasty trade! :)
But the brake even might be relevant only at expiration... if the stock moves down rapidly, your account will bleed. Isn't that so?
the problem with having such wide strikes is the risk if it goes wrong could really screw you.
Agree, but Mike says at the beginning that wider strikes are more appropriate for those with bigger accounts. Instead of multiple small contracts, one contract with wider strikes might be a better proposition.
What is the difference between buying 5 x $1 wide spread versus buying 1 x $5 wide spread?
as 4th option, for completely naked put its even higher than 68% which is great, but only to avoid assignment we are buying a distant put correct?
Buying the OTM put defines risk and helps smooth out the volatility of P/L - it doesn't affect assignment risk since assignment risk only applies to ITM short options. Assignment risk has to do with extrinsic value - the more extrinsic value a short option has, the less likely it is to be assigned since the counter-party burns all extrinsic value when they exercise an option.
What are the cons of wider spread? Compared to lower spreads More buying power reduction? And larger loss right?
Wider spreads do take more BPR, but not if you're comparing a $5 wide spread to 5 contracts of a $1 wide spread. BPR would be similar in that case, but you have a lot more space before the $5 wide reaches max loss, compared to the $1 wide spreads.
Only larger losses and BPR if you're comparing ONE contract of $1 wide spread to ONE contract of $5 wide spread. The wider spread will have more profit potential, more max loss potential, but a higher POP as well.
I hope this helps!
What about the collateral capital you need the further out you move the wings
Great video.
question... say I want to buy QQQ at lower price..If I sell a naked putOTM.. return is very small.. why not a short put and a long put ..wide spread.. return on mpney is better..and if stock finishes between short and long..than I am ahappy .iam assigned the stock(cash secured of course).
thank you..
What are the risks of wider spreads? Is it true that the max loss is greater when the spreads are wider?
Really good one
Can't thank you enough 👍👍
I’m having trouble finding a spread with a 2 point range that pays 1.00 credit
What’s the negative of wider spreads?
really great explanations
Ps :
5:59 - Happens :D
Thanks! Glad you enjoyed it!
minor point: you dramatically increase your risk. It feels naked because it almost is naked.
So on robinhood, my issues are when still trying to understand how to issue my "bid-ask" and it ends up asking me to 'set my own for better probability of getting filled'... any suggestions anyone?
Set my own limit price*
Can u tell me if this is also called a Bear Put Spread. U say this is a Bullish trade. im still not sure if that is also called a Bear Put Spread or not.
So, why have the offset debit leg?
To define risk, if you want to.
What about collateral ?
With equities, the collateral used for a credit spread is simply the max loss, unless you're trading futures options.
The wider the spread, the more buying power will be used, but you'll be collecting more premium as well which offsets this increase somewhat.
tastytrade thank you very much for answering! I understand that the absolute profit is great with wider spread, but then if you consider collateral, is the profit rate (profit/collateral) typically lower for wider spread? Again, thx a lot!
Is there disadvantage with wider option spread? Needing a higher margin?
There is a higher margin for wider spreads, because there is a higher max loss. That is the trade off!
But loss in this strategy!?? How to manage loss!????
Wider the spread the greater the max potential loss could be
What if volatility increases?
If you have a credit spread that is OTM and IV increases, extrinsic value would increase in the spread all else equal, but to a lesser degree than if you were just short the single option, since the long defined risk aspect of the trade offsets a lot of greek exposure.
@@tastyliveshow thanks.
Picking up dimes instead of nickels and the steamroller got bigger.
Is this something that can be applied to debit spreads?
Sure - the main point in debit spreads to create a high probability scenario is to ensure the extrinsic value collection on the short option is MORE than the extrinsic value paid for in the long option.
What happens if the price tanks passed 68? You are so screwed.
But your collateral
Mine is as wide as Putin