Optionpit – Trading Debit and Credit Spreads

This course uses the Option Pit Method of Risk Management, Efficient Use of Capital and Trade Structure to properly set up simple spreads and single options.

COURSE BUNDLE – OPTION & CREDIT SPREADS STRATEGIES

Details of this bundle are provided here, but you may find more information on the individual course pages.

SECTION I – PHILOSOPHY AND DEFINITION OF SPREADS

We introduce option spread strategies in this module. Options spreads sit right in between the 4 basic Option positions and the more Advanced level Option strategies. The Spread is the bridge between the basic Option strategies and the advanced strategies. In fact, most advanced strategies are composed of the spreads we cover in this course, so this stuff is the key. For the busy professional, Spreads offer the right mix of reward and risk. All 4 vertical spreads introduced in this course are extensions of the 4 basic Options. Spreads add an element of cost control and / or risk control to individual Options positions. Master the four Options Spreads, and you would have acquired a skill that can create consistent monthly income. Additionally, you’ll be well on your way to mastering the advanced Options strategies.

What you will master

• Advantages and disadvantages of single Option strategies – Long and Short
• How Spreads tackle the negatives of individual Options
• With Spreads, you can now be a seller of Options
• The meaning of “defined risk” Options investing
• Spreads help you control your costs and risk exposure
• What are the differences between credit and debit spreads
• Control risk and costs without compromising on Probability

SECTION – II REAL LIVE TRADES ON THE 4 OPTION SPREAD STRATEGIES

THE BULL CALL SPREAD

The Bull Call Spread is an extension of the Long Call Option. When you buy a Call Option, you are bullish. The Bull Call spread maintains the bullish element of the Long Call while controlling your costs and has a limited losses profile. Of course, everything is a compromise. But you would probably be willing to make this compromise. We explain why this spread is called a Bull Call spread, and how to address any confusion from these strange names. The risk-reward profile of a Bull Call spread is very favorable. We define why the Bull Call spread is a Debit spread, and study its Profit and Loss diagrams in detail. We put a real trade on IBM and we navigate the trade for a couple of weeks.

THE BEAR CALL SPREAD

The Bear Call Spread is a credit spread, and we explain why credit spreads are a viable way to assuming an Option seller’s profile. The Bear Call spread limits your risk. We study the role of Probability in selecting credit spreads as well as implied volatility considerations and time decay. Time decay is a key component of credit spreads and the Bear Call spread can be an excellent way to generate monthly income. All spreads can be part of the busy professional’s playbook, but credit spreads can be especially attractive. We analyze the right criteria for credit spreads, including the selection of the expiry series as well as the individual Options itself. We put a real trade on Amazon (AMZN) and track, monitor and adjust this trade until its exit.

THE BEAR PUT SPREAD

The Bear Put spread can be a powerful strategy for bear markets. The Bear Put is an extension of the Long Put Option. The Bear Put has some specific features, which make it a very attractive spread, and we dig deep into these characteristics. We put a real trade on Netflix (NFLX). The risk reward characteristics of Bear Put spreads are very attractive as its losses are limited. The Bear Put, just like the Long Put is a Vega positive trade, so this trade can optimize a bearish move as well as any upside from implied volatility changes. The choice of expiry series, time decay effects and the choices of individual Options are also important.

THE BULL PUT SPREAD

The Bull Put spread is a flat to bullish that profits primarily from time decay, but can also profit quicker from a move to the upside. Its important to pick the right strike prices for the Bull Put spread, as is a thorough analysis of the stock’s chart and support levels. In this course, this is what we do – we pick Google (GOOG) as our candidate for the Bull Put, and analyze past price action, support levels and put on a successful Bull Put spread.

MONTHLY INCOME STRATEGIES PRIMER

If you have a regular job, then you need strategies that allow you to focus on your job, but yet create a somewhat stable and reliable income stream from your investments. In this PRIMER, we dig deep into credit spreads and understand why being an Option seller (risk defined of course – no naked selling) may not be that bad after all.

CREDIT SPREAD STRATEGIES – ADVANCED CREDIT SPREADS

SECTION III – Selection Criteria for Credit spreads

Consider this course as “Advanced Credit Spreads”. Both these spreads are dissected to convey an advanced level of knowledge and skill in using these credit spreads. Everything from the ideal credit spread trade setup, trade management, adjustments and exit. You’re expected to know what a Bull Put and Bear call spread is.

If you have a regular job, then you need strategies that allow you to focus on your job, but yet create a somewhat stable and reliable income stream from your investments. In this course, we dig deep into credit spreads and understand why being an Option seller (risk defined of course – no naked selling) may not be that bad after all. We analyze Probability, Time decay and Volatility considerations and come up with some pretty good stuff.

These spreads form the foundation blocks of “Monthly Income” strategies. And not surprisingly, all advanced strategies like Iron Condors or Backspreads use some variation of the Bear Call or the Bull Put spreads. Anyone wanting to create a consistent monthly income of 2% to 5% will use these strategies as part of their “Income” portion of their portfolio.

SECTION IV – Live trade entry, Management and Exits

What you will master

• With Spreads, you can now be a seller of Options
• The meaning of “defined risk” Options investing
• Cutting-edge trade entry analysis
• Selection of the right expiry series
• Selection of the appropriate strike prices
• Volatility considerations
• Setting the optimal “width” of the Spread
• Set your monthly target that can still let you sleep at night
• Optimize Time decay, Probability and Premium collection variables
• Set “pain points”, and plan the exact nature of adjustments
• Setup trades that require little monitoring
• Why you can be wrong on direction and still make a profit
• Ideal strategies for losing positions
• How do you handle your position when your short strike prices are in danger

Sale page: Optionpit – Trading Debit and Credit Spreads

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