Top 3 Credit Spread Option Strategies- projectoptions Flashcards
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Credit spread strategies for
Credit spread strategies for traders for income, credit spreads can profit more than one way (high probability trades)
Credit spread strategies can profit from
Favorable changes in the stock price, small unfavorable changes in the stock price, passing of time, decreases in implied volatility (stock’s option prices decreasing, because we short options)
What is Credit spread strategy?
Collects premium when entered (the option we sell bring more money in than the option we buy)
Put Credit Spread Strategy
Selling a put option and buying a put option at a lower strike price (same expiration time/quant) (puts at lower strike prices are cheaper than higher strike prices)
https://www.dropbox.com/s/4vwfd777euf5fi3/Screenshot%202019-04-14%2018.00.06.png?dl=0
Put Credit Spread characteristics
Bullish (profits from stock price eincreases); Positive exposur to time decay (profits from time decay), max profit: credit *100, max loss: (width of strikes-credit) * 100; BE= short put strike price - credit
https://www.dropbox.com/s/3yks1z8pzfeaucp/Screenshot%202019-04-14%2018.22.23.png?dl=0
Put Credit Spread example (rather examination how to react to priceaction)
see pics; expl: https://youtu.be/mgfBmO1XnC0?t=273
https://www.dropbox.com/s/6133rkqr95mbtqo/Screenshot%202019-04-14%2018.09.34.png?dl=0
https://www.dropbox.com/s/s7ztsqpuebl7amj/Screenshot%202019-04-14%2018.08.06.png?dl=0
When do you use Put Credit Spread Strategy?
Put Credit Spread Strategy: if you are bullish on the underlying, but still would like to profit even if the price does not go up/ even decreases slightly
Put Credit Spread Strategy
Selling a call option and buying a call option at a higher strike price (same expiration time/quant) >> will collect credit (calls at higher strike prices are cheaper than lower strike prices)
Call Credit Spread characteristics
Bearish (profits from stock price decreases); Positive exposure to time decay (profits from time decay), max profit: credit *100, max loss: (width of strikes-credit) * 100; BE= short call strike price + credit
https://www.dropbox.com/s/l5ml2hvl3h4tplr/Screenshot%202019-04-14%2018.22.39.png?dl=0
Call Credit Spread example simply
Call Credit Spread example (rather examination how to react to priceaction)
When do you use Put Credit Spread Strategy?
Put Credit Spread Strategy: if you are bearish on the underlying, but still would like to profit even if the price moves sideways/ even increases slightly
The Iron Condor, what is it?
The combination of Put Credit Spread Strategy and Call Credit Spread Strategy
The Iron Condor, how to manage and why you do?
Selling a call option and buying a call option at a higher strike price and Selling a put option and buying a put option at a lower strike price (ALL same expiration time/quant >> more credit overall, higher profit potential; but you need to have a rangebound stock, only sideways movement!!
The Iron Condor’s characteristics
Neutral (profits from sideways movement in between the credit spreads); Positive exposure to time decay (profits from time decay), max profit: credit *100, max loss: (width of wider spread-credit) * 100; two BE prices: Upper BE= short call strike price + credit. Lower BE= short put strike price - credit
https://www.dropbox.com/s/azxovdegrmw2k9j/Screenshot%202019-04-14%2018.42.59.png?dl=0
Iron Condor example simply
Iron Condor example (rather examination how to react to priceaction)
see pics; real expl: youtube; at the begining of this example the Iron Condor lost money << if you sell an iron cond and the price starts to trend in one direction (towards one of your spreads > that is stat to increase in value at a faster rate as the opposite side is losing value) > increase in iron condor price overall
https://www.dropbox.com/s/ul9z2j9ze6lo4ku/Screenshot%202019-04-14%2019.10.09.png?dl=0
https://www.dropbox.com/s/6fey8cpshis1sjo/Screenshot%202019-04-14%2019.11.03.png?dl=0
When do you use Iron Condor?
when the stock price remains rangebound; if you expect the sideways movement and the price remains in the range between the call spread and the put spread you sell; if the stock price starts to move in one direction and does not stop > losses on your strategy; but limited loss potential
