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Verticalspread

What’s The Best Vertical Spread Option Strategy?I’m Markus Heitkoetter and I’ve been an active trader for over 20 years. I often see people who start trading and expect their accounts to explode, based on promises and hype they see in ads and e-mails. They start trading and realize it doesn’t work this way. The purpose of these articles is to show you the trading strategies and tools that I personally use to trade my own account so that you can grow your own account systematically. Real money…real trades. What’s The Best Vertical Spread Option Strategy? You may have previously heard someone say, “ Vertical spreads are the same as getting weekly paychecks! “ Is that even true? We’re going to go in-depth on each strategy to discuss each of the pros and cons. I’m also going to discuss how each strategy should be used in any given market condition. Since we’ve previously discussed credit spreads and debit spreads, you’re probably wondering… what’s the BEST vertical spread option strategy? Let’s break down each of the vertical spread option strategies in detail and look at examples in Tasty Trade. Call Debit Spread What is a Call Debit Spread? A call debit spread is a position in which you buy a call option and sell a call option at different strike prices using the same expiration date. When should this strategy be used? This strategy is used when you believe the stock is increasing in price, but not a dramatic movement. What are the benefits of this strategy? Trading this position can potentially reduce the overall cost associated with taking on the trade. This type of strategy also reduces the break-even price of the trade. When does this trade lose money? When the underlying stock moves sideways or downward. What is the max risk for this trade? The max risk associated with this strategy is the cost of the premium paid to take on the trade. What is the max reward for this trade? The max reward for this strategy is the difference between the strike price of the two calls, multiplied by 100. Minus the premium paid to take on the trade. Call Debit Spread Example - Reduced Margin Requirement: $910 - Max Risk Reduced: $910 - Max Reward: $4090 Put Debit Spread What is a Put Debit Spread? A put debit spread is a position in which you buy a put option and sell a put option at different strike prices with the same expiration date. When should this strategy be used? This strategy is used when you believe the stock is decreasing in price. What are the benefits of this strategy? Trading this position can potentially reduce the overall cost associated with taking on the trade. This type of strategy also lowers the break-even price of the trade. When does this trade lose money? The underlying stock moves sideways or downward. What is the max risk for this trade? The max risk associated with this strategy is the cost of the premium paid to take on the trade. What is the max reward for this trade? The max reward for this strategy is the difference between the strike price of two calls, multiplied by 100. Minus the premium paid to take on the trade. Put Debit Spread Example - Reduced Margin Requirement: $910 - Max Risk Reduced: $910 - Max Reward: $2090 Call Credit Spread What is a Call Credit Spread? A call credit spread is a position in which you sell a call option and buy a call option as protection. These option contracts have different strike prices but have the same expiration date. When should this strategy be used? This strategy is used when you believe the stock is decreasing in price or trading sideways. What are the benefits of this strategy? Trading this position produces a credit from the premium received for selling the put option. Buying the additional call option provides protection, limiting the risk of the trade. When does this trade lose money? This trade loses money when the underlying stock moves up quickly past your strike price. What is the max risk for this trade? The max risk associated with this strategy is the difference between the strike prices, multiplied by 100. What is the max reward for this trade? The max reward for this strategy is the premium received for selling the call option, minus the premium paid for protection. Call Credit Spread Example - Margin Requirement: $965 - Max Risk: $965 - Max Reward $35 - Premium Received: $35 Put Credit Spread What is a Put Credit Spread? A put spread is a position in which you sell a put option and buy a put option as protection. These option contracts have different strike prices but have the same expiration date. When should this strategy be used? This strategy is used when you believe the stock is increasing in price or trading sideways. What are the benefits of this strategy? Trading this position produces a credit in the form of the premium received for selling the put option. Buying the additional put option provides protection, limiting the risk of the trade. When does this trade lose money? The underlying stock moves downward sharply. What is the max risk for this trade? The max risk associated with this strategy is the difference between strike prices, multiplied by 100. What is the max reward for this trade? The max reward for this position is the premium received for selling the put option, minus the premium paid for protection. Put Credit Spread Example - Margin Requirement: $837 - Max Risk: $837 - Premium Received: $163 - Max Reward: $163 How Do I Choose The Best Vertical Spread Option Strategy? I personally only select options that match my trading plan. You’ve probably heard me say it a million times if you’ve heard it once… There are 3 things you need to know to be successful at trading. 1.) You need to know which options to trade 2.) You need to know when to enter 3.) You need to know when to exit I use the PowerX Optimizer to help me execute these trades successfully.
TVC:NDQEducation
by rockwelltrading
Marriott bullish inclined defensive options - 18 Sep ExpiryRolling on my previous MAR trade that expired on the 28 Aug. I decided to continue with MAR as price on the 25 Aug seemed to be having trouble rising. RSI was also at a high band of 65. Overall, price seemed to be pretty predictable and not volatile at this point. As my defensive trade is focused on picking off premium. I do not expect price to rise and as such, I structured a bullish inclined trade with a Max gain at strike 109.96 ($1677) and breakeven at 111.27. Hoping that my contracts can just expiry worthless. If price ranges or goes bearish I will collect est. $1079 Sold 14 Calls @ 0.93, Strike 110 Bought 1 Call @ 2.13 Strike 104 BP block: 13k
NASDAQ:MAR
by Ronin_trader
LONG $FB ~ FACEBOOK~ SETUP USING CALL-SPREAD ~ #OptionsTradingMETHOD: Long FACEBOOK {price at entry 198.39] via: +2 VERTICAL FB 100 (Weeklys) 27 DEC 19 195/202.5 CALL @3.75 ; Decay only threatening if losing the trade; 1:1 R:R. STRATEGIES: Using day chart: The 20/50 Mean green cloud contracts, and we can look for a new expanding cloud to form for a long from the mean. The Fisher Transform bounce signal appearing near the mean. TACTICS: The plan in terms of stock price: STOP is price < 196 TGT1 202.34 to scale; TGT2 208 to exit Consider scaling as green cloud becomes large Consider exiting at 50% max profit We may let the Fisher Transform and 20/50 mean together take us out technically for whatever we get win or lose. Will update in comments, B3 d^.^b
FLong
by HammondB3
LONG $AMT ~ LONG SETUP via SELLING PUT SPREAD ~ #OptionsTradingMETHOD: Long AMERICAN TOWER {price at entry ~ 215.60} via: -2 VERTICAL AMT 100 (Weeklys) 27 DEC 19 220/212.5 PUT @4.20 ; !! may be tough to fill !! Trading @ medium IV so going for a positive R:R play Decay helps if price > 216 and hurts if below; STRATEGIES: Using AMT day chart: The 20/50 Mean looks set to make a green cloud after mean crossed. The Fisher Transform line signaling an oscillation long. TACTICS: The plan in terms of stock price: STOP is price < 212 TGT1 220 to exit (5:3 Reward:Risk) Consider exiting at 50% max profit ($840/2) or better We may let the Fisher Transform and 20/50 mean together take us out technically for whatever we get win or lose. Will update in comments, B3 d^.^b
NYSE:AMTLong
by HammondB3
$COST ~ COSTCO~ SHORT SETUP USING PUT SPREAD~ #OptionsTradingMETHOD: Short COSTCO {price at entry ~ 292} via: +2 VERTICAL COST 100 (Weeklys) 27 DEC 19 300/292.5 PUT @5.00 ; Trading @ low IV after the earnings dump; Decay helps if price < 294; Sold high extrinsic put to buy high intrinsic put STRATEGIES: Using COST day chart: The 20/50 Mean looks set to make a big pink cloud after a long chart runup. The Fisher Transform line signaling a continuation short. The last earnings bailing of stock price turned out to last a few days. TACTICS: The plan in terms of stock price: STOP is price > 295 (MUST OBEY, Upside down R:R trade) TGT1 288 to scale; TGT2 286.25 to exit (NO EARLY EXIT, Upside down R:R trade) Consider scaling as pink cloud becomes large We may let the Fisher Transform and 20/50 mean together take us out technically for whatever we get win or lose. Will update in comments, B3 d^.^b
NASDAQ:COSTShort
by HammondB3
Closing Bull Call Vertical SMG, Nearly Max ProfitWe are closing out our 90/95 bull call spread, earning a debit of 4.99 by selling the 90 Cs and buying back the 95 Cs. We have made a profit of 49.7/contract, with a maximum potential profit of 50. The potential possible gains of holding the position are nearly negligible, so we are taking the successful trade and closing it out now, to best preserve strong risk/reward characteristics. Below, we've attached our methodology for why we took the position initially. We sat the vertical below the market, essentially betting on the market staying above a place it already was very far above. This is one of our favorite strats, and has proven profitable often, despite the natural consequence of having to risk an amount significantly larger than the potential reward. -- Jan 20, '19 -- " We are bullish on both the technicals and fundamentals of SMG . The multinational corporation, known for its consumer fertilizers and pesticides and new expansion into hydroponic equipment for the marijuana industry, has been trading in an up-channel. 2019 Q2 earnings beat estimates, with EPS of $3.64 (.22 above forecasts) and a top line of $1.19 billion (greater than the estimated $1.16 billion). The biggest growth opportunity is in its Scotts' Hawthorne subsidiary, which provides various products (hydroponics, fertilizers and lighting systems) to the cannabis industry. "
NYSE:SMG
by LaurenTrading
bear flag on AIG and subdued volatility: put debit spreadAIG currently is trading with an IV30 of 19.6, making its IV Rank 21.8. This low rank indicates that the options will be cheap, and encourages debit spreads, regardless of being bullish or bearish. These spreads will profit when volatility mean-reverts to higher levels. Because of this well-developed bear flag, we are expecting a continuation of the prior downtrend, thus reversing the immediate uptrend characterized by higher highs and higher lows. To profit off of this, we are doing a put debit vertical by longing the July 26th 54 puts and writing the 53s, for a max potential profit of 41 and capped potential loss of 59, per contract. This is particularly cheap because they expire prior to the expected earnings announcement on August 1st, '19. The break even price is 53.41 because it is being done for a debit of .58. There is max profit below the short strike K = 53.
NYSE:AIGShort
by LaurenTrading
DETAILED TA & FA for SPY June 29 296/297 Bear Put SpreadWe are taking a bearish position in SPY, S&P 500 ETF that represents 1/10th of the broad-market SPX. We are taking a bearish positions for both fundamental and technical reasons. Our position is a bear put spread with expiry this Friday. We are writing the 296 puts and buying the 297 puts for a total debit of .73 per contract. Per contract, the max profit is $27 and the max loss is $73 if SPY finishes above 297 on Friday. This position has defined risk/reward characteristics and is -120 deltas. Technically, there is a clear descending triangle. Descending triangles during downtrends serve as continuation patterns. When the price breaks through the support, it is best to take a short position, if there is a volume confirmation (done on high volume). This just occurred, thus we are initiating our position with a SPY price target of 290.82 (a drop of 92%, the height of the descending triangle formation. This movement is confirmed by the negative and diverging MACD, Parabolic Stop and Reverse indicator above the candles and a DI- above the DI+ on the ADX. Fundamentally, geopolitical tensions are escalating as the U.S. takes a hard line on Iran and China. Iran has announced that there is “no longer a path of a diplomatic solution” with the American President as Pres. Trump imposed sanctions yesterday. Mnunchin followed Trump’s lead and indicated that financial sanctions will be imposed. This leads to increased instability, and as the market is trading near all-time highs, would interfere with the bull run. U.S. officials also downplayed expectations from the Trump-Xi G20 meeting, which could have dire bearish consequences.
AMEX:SPYShort
by LaurenTrading
BA July 355/370 bull debit vertical spreadThis technically-driven call debit spread on Boeing entails buying a 355 call and selling the 370 call, both with standard july expiry. The cost of taking this position is a debit of 6.35, making the break even 361.33. This is slightly below the long term support levels, and the resistance of the upper boundary of the horizontal channel, which will become a support after it is penetrated. The lows from March 22nd and April 10th were both roughly 362. Once this was penetrated the stock has traded in a horizontal range. This support around 362 has been tested a couple times; this makes it stronger when it is finally broken through. Also, the 50 day simple moving average is at 365, and the 200 simple moving average is at 363, further strengthening this area of support. The maximum profit for this trade is reached at the strike of the written call, 370, and is the difference between the strikes minus the debit (15-6.35= 865/contract). This trade is 18.91 deltas positive per contract.
NYSE:BALong
by LaurenTrading
Preparing for March 11 earnings week (ULTA) - Earnings on Thurs after close - Nearing its ATH at $322 (Nov 2018) - Cramer is bullish - 1 year chart uptrend is very good - The question is if it can break the ATH or not - What is different now than it was in Nov 2018?... Maybe the market is healthier overall - It is trading above the VWAP and the SMA is in an uptrend - I am bullish here and would think about doing a vertical spread at the money $305/$310. This would be a rather conservative strategy, in case there is a pullback at $322. I do not see the stock plummeting very far either, seeing that it's been growing so steadily in the last 1 year.
NASDAQ:ULTALong
by PocketTendies
Chevron, CVX, Bull Put, Credit SpreadI am not licensed or certified by any individual or institution to give financial advice. I am not a professional Stock trader. Chevron (CVX) gapped down today, big time; but it couldn't break the 100 Day Exponential Moving Average (EMA). If you look back to October 27, 2017 (see the purple arrow I inserted on the lower left of the chart to mark the date) Chevron did the exact same thing. It proceeded to go back up. I think it will repeat itself in the coming days. It used the 100 Day to bounce and will go back up. I typed up the strategy I used for this play and you should be able to see it on the chart. The 200 Day EMA is sitting just above $118.40ish giving this play more than $4.00 of cushion. Additionally, next week is a short trading week in the United States due to markets being closed on Monday in observation of Memorial Day. That means this Stock has four days to not go down more than four dollars, and the Credit from opening the play is kept. Yes, you could tighten the spread; but having the 200 Day EMA adds a little protection, and I'm still learning how to do Spreads. :)
NYSE:CVX
by AROD01
2
AEP - May '18 Exp. Put Vertical Credit SpreadTrade details: 65/60 Put Vertical Credit Spread @ $1.00 Prob. of Max Profit = 70.13% Prob. of Max Loss = 10.10% Break-even @ $64.00 119 D.T.E. Trade plan: Entry by oversold + support/resistance analysis Expecting $68.00 support level to survive possible test before earnings report next week for an uptrend continuation before May '18 expiration. Using longer duration for some more premium + allow for adjustment if trade goes very wrong. Expecting spread to expire worthless but will take early profit + place new trade with same bias around earnings if IV swells premium up enough to give a greater edge.
ALong
by AtoHoward
XLK - Feb.'18 Exp. Put Vertical Debit Spread (Hedge)Trade details: 66/61 Put Vertical Credit Spread @ $1.82 Prob. of Max Profit = 4.90% Prob. of Max Loss = 29.12% Break-even @ $64.18 51 D.T.E. Trade plan: Straight up hedge against technology sector/semiconductor industry (NVDA + AMAT long put credit spread positions - both are linked below). Feb.'18 expiration chosen to focus on Feb.'18 earnings reports for both NVDA and AMAT in case of strong downward plunge in technology sector. Trade approaches 50/50 play from this point on since break-even price is the same as close price for the day. Expecting spread to expire worthless if price falls between break-even & $61.00 by expiration, but will take early profit (and re-establish position if necessary) if there is an early move to ~$62.85 level.
AMEX:XLKShort
by AtoHoward
COP - Feb.'18 Exp. Put Vertical Debit SpreadTrade details: 57.5/50 Put Vertical Debit Spread @ $3.01 Prob. of Max Profit = 10.86% Prob. of Max Loss = 34.02% Break-even @ $54.49 50 D.T.E. Trade plan: Entry by overbought status + indication of correction/mean reversion analysis. Expecting pullback to moving average (VWMA) before earnings report in Feb.'18 for profit on weakening uptrend as seen in both Daily + Weekly charts. Expecting to take quick profit at $53.70 level + will re-establish position if quick profit is possible. Expecting to hold spread through earnings + allow spread to expire worthless if reversal is strong. Adjustment will be made if the position goes strongly opposite past $56.40 resistance level.
NYSE:COPShort
by AtoHoward
SPY/QQQ - Feb.'18 Vertical Spread Pairs Trade (QQQ side)Trade details for QQQ: 159/149 Put Vertical Debit Spread @ $2.97 Prob. of Max Profit = 18.00% Prob. of Max Loss = 43.96% Break-even @ $156.03 52 D.T.E. Trade plan: QQQ identified to be overbought + sign of weakness compared to recent rally. SPY & QQQ are highly correlating, with QQQ as more volatile mover (suitable for debit spread). Feb. expiration has sufficient premium for credit spread + room for adjustment during trade if needed Built credit spread in SPY + Built debit spread in QQQ For QQQ debit spread: Expecting QQQ to breach $152 level by expiration. Expecting to possible adjust with naked put or put vertical spread if market rallies strongly to breach & stay above $160 level. Max risk reduced by 12% from SPY side of trade with market rally. Unlikely max profit of $703 if market plunges to $149 level. Check SPY side of pairs trade for more information.
NASDAQ:QQQShort
by AtoHoward