HomeОбразованиеRelated VideosMore From: Sky View Trading

The Right Way To Buy Options - Long Vertical Spread

5199 ratings | 293120 views
www.SkyViewTrading.com Most traders start out buying options because it’s the simplest option strategy to understand. If you think a stock will go up, you’d buy a call. If you think the stock will go down, you’d buy a put. Well this is NOT a very good trading strategy because you’ll lose money every single day due to time decay. No smart investor is going to buy a depreciating asset and call it an investment. Watch this video to learn a better way to buy options to make a directional bet on a stock but WITHOUT time decay hurting you. We’re going to show you how to trade the Long Vertical Spread to accomplish this. Also, make sure to sign up for our FREE 3 Video Lesson Series at www.skyviewtrading.com! Adam Thomas Sky View Trading what are options how to trade options how to buy options option pricing options explanation stock options option strategies Vertical Spread Option Strategy Vertical Spread Iron Condor Bull Call Spread How To Trade a Vertical Spread option trading basics option time decay
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Text Comments (343)
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张梓径 (5 hours ago)
Out of money then you gain 250$?
Kyler Yake (3 days ago)
Why would you buy an itm call in the first place. No to mention 5 dollars under.
Jiansen Zheng (3 days ago)
Cool. I like it!
Spencer Mayaleh (8 days ago)
What happens if the the buyer of your short wants to exercise his option? Pleas if anyone knows that would be great
boss hog (13 days ago)
Watched twice. Nice job. 🤙🏻
Marcus Riddick (17 days ago)
Is there a way to simulate this out come in a Level II account in thinkorswim? Im new to options and do not have approval yet for my account to do spreads....
R T (22 days ago)
you must specify that the calls were negotiated at 75, otherwise this vid is unnecessarily confusing for a simple concept. In fact you seemed to have bought the long call 5 dollars in the money. But it is my understanding that most pro traders buy calls and puts slightly out of the money for short term trades.
R T (22 days ago)
you left out that smart traders buy calls close to in the money, they do not swing for the fences and they only trade them short term so your first example in the vid is not a good one imo
Justin Corlett (28 days ago)
Love the channel. Can you explain how at 50$, the option is still out of them money for the short 80 call? Because it is short 80, Im having a hard time understanding that.
Chenxing Liu (29 days ago)
The think or swim part is very helpful. Thanks!
Paul Spelt (1 month ago)
Thanks this really cleared this up for me! Subscribed. I guess the bearish inverse of these examples would be buying a put at 80 (ITM) and selling a put at something like 65 (OTM) right? Also, do you let the options expire in this case? Thanks!
Richard Servello (1 month ago)
What if someone exercises the naked call early???
binary iqoption (1 month ago)
helllo xxxxx
GunP01nT510 (1 month ago)
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sha p (1 month ago)
Thank you so much , what trading platform are you using ???
Ben (1 month ago)
But markets are effecient, so where does your edge come from? Sure there is time decay when selling options to "profit" from, but it doesn't always go your way and often the option buyer wins.
Dung Ho (1 month ago)
I still don't get. How you get that 500 dollar or that 200 dollar from?
Ned K (2 months ago)
How does the $250 at the start count against the $750, did you own options previously? Presumably the guarantee would still be required by the exchange, would they really let someone make a larger trade for less capital this way?
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Hernando Hoyos (2 months ago)
On the first call at 70 example, i dont understand why the breakeven is 77.50. Is this just the cost of stock + premium? Did he mention the premium anywhere, sorry a little confused. Thanks in advance. Great video.
jeremy339 (2 months ago)
So how do you exit this trade prior to expiration?
Daniel Ceballos (2 months ago)
Why does the short call have to expire worthless
MisterAwesome24 (3 months ago)
The $85 strike contract confuses me. Do you already have to have that contract in order to sell it? How are you getting $250 for free and deducting it from your long call?
MisterAwesome24 (3 months ago)
So I have to write my own calls?
Patrick Adams (3 months ago)
Your examples do not take into account volatility movement, where IV is at the time you put on the trade or what scenarios are acceptable for placing a vertical spread. When "buying" a vertical spread (call or put). Theta does play a role in the profit of the spread. If the price moves too rapidly, it will have to travel much more than your examples to realize maximum profit. you should show how to calculate probability of profit as well as how to calculate the spread profit over time. here is a link you can share that shows this. http://www.optionsprofitcalculator.com/ . Also, explain how many times do you buy vertical spreads and realize maximum profit because it is less than 50% of the time. One last thing is you should explain "Liquidity" in the underlying being purchased and the importance of trading liquid products. Don't get me wrong. I like your examples and trading verticals is my bread and butter, but you need to explain the entire trade so people do not go out and use your examples without knowing the whole story because they will lose money. You NEED to do a follow up video and explain this strategy completely.
ncs2000 (3 months ago)
I am confused about scenario one, paid $500, but only regain $450, isn't that a lost?
bryan duffy (3 months ago)
If your buy call is at 80 and the stock goes above 80 doesn't your option pay u at 80 and u miss the money above 80?
Ray Lee (3 months ago)
Really easy to understand vertical spreads laid out like this, thanks! I do have one question, I currently use E-trade Pro and when I place an order for a spread, I'm given 4 "price types" - Market, Even, Net Debit and Net Credit. What are the differences?
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he's helped me achieve $80k profit in just 1 months.
giffy 7 (3 months ago)
Jesus this video just flipped my world upside down lol been buying single options but after watching this is just doesn't make sense not to buy the vertical. I usually buy LEAPS but when looking at the delta of a LEAPS vertical for like two years the delta is extremely low compared to shorter expirations times. Should I change my strategy to shorter time frames like a couple months to gain profits faster if my direction is right or keep the long term LEAPS for the time benefit, not really sure..
Makaveli (3 months ago)
Very confusing explanation.
HD كاس العالم (3 months ago)
Was this a debit spread in the example used in the vid?
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James Kuykendall (3 months ago)
Yes a call debit spread
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Kurtis Thornton (4 months ago)
how can you get level 3 trading ? to do spreads
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Taylor Jones (4 months ago)
As someone who has done both, I would definitely recommend using vertical spreads as opposed to simply buying naked (single) options. The limited profitability is much worth the trade off for the amount of risk you incur. Spreads are more affordable, offer more flexible break-even points, and your P/L is much less volatile. If you continue to only buy single options, even if you are right in the long-term, you most likely will be stopped out and/or find it very difficult (and most of the time unwise) to hold a position that could easily lose 50% value overnight. Buy Spreads!
William Lusher (3 months ago)
Does your short call need to be covered? As a beginner, I would be nervous about it getting exercised and not having the stock.
Patrick Hughes (4 months ago)
Super noob question but....when do you sell these?
Piyush Chauhan (4 months ago)
For example if I buy put strike price of 70 in your vedio and it is available at 30 rs means I have to pay 3000 rs and the put option of 65 is 15 rs but current price of Stoke goes to 75 to 70 then the price of 65 increase from 15 to 20 and if I would have bought 65 strike price at the rate of 15 then when current price moves can I sell the 65 strike price to other buyer at 20 rs which I initially bought at 15 making profit of 5 rs ??
Piyush Chauhan (4 months ago)
Liked your work , I have a question that example if I buy a naked option of call at 50 Rs and after some time it increases to 55 rs can I sell it other buyer ?and profit from difference?
Adwoa Baidoo (4 months ago)
I use robinhood to do my trading as a beginner and i don't think they have the option to do vertical trading like you showed here, do have any recommendation on how to do this using platforms like robinhood?
Kc F (4 months ago)
How are you selling a buy option for a stock at one strike price unless you own one at that same strike price?
nsolcis (4 months ago)
Great vid man
Kebaya (4 months ago)
I wanna learn this..amazing
Bernardo Dantonio (4 months ago)
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Madeline Yau (4 months ago)
So here is an example if WSM stocks today is at $68.19 and i want to do a vertical trade of $2.00 increase in the time of expiration if I’m right I make money? If it decreases by $2.00 I lost money? So with options I’m biding if the stock will increases or decrease? Sorry if I’m confusing at explaining my thought process trying to learn this.
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Rahgir Nabi (4 months ago)
Great video! Can you close your position early on the sell? What if the buyer wants to exercise the options they bought and it’s in the money? Thanks!
Evelyn Shaw (5 months ago)
Quite lucrative! Mr Dennis Mcneel trades with a very complex methodology it's no wonder I'm able to receive up to 8K USD and even more as weekly payouts.
Junaid Sohail (5 months ago)
Good video. I'm curious why almost no videos about long vertical spreads mention that the option can be closed any time before the expiration as well. Let's say, if I don't want to risk waiting till expiration or shoot for the max gain, and I am happy with a 20-30% gain, so I can close the option much earlier? Am I understanding this correctly?
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Sheshagiri Pai (5 months ago)
This is a Debit spread. What advantage does this have over a OTM Credit spread. i.e Sell Call @80 and Buy Call @90
johnny llooddte (5 months ago)
ahahah first you have to have 25,000 in your account to short.. and your risking 500 dollar loss to make 750.. youre insane
boss hog (13 days ago)
johnny llooddte what’s your strategy
johnny llooddte (5 months ago)
80% of options die worthless
Nick Bertocchi (5 months ago)
these trade example profits seem rather unrealistic if theta (time) is slowly killing your long leg at the same time it's killing your short leg you sold. Are you going long farther out in time, say (68 days to exp) and shorting sooner (30 days or less to exp)?
Taloot B (5 months ago)
I just buy them in a good spot, weather it's a call or put. I don't see myself ever doing this. True limited loss but limited gains as well
johar Mohammad (5 months ago)
Now I know you never sold options. If you did, you would not make kind of silly mistakes you are doing in the video.
lmwai (5 months ago)
Regarding the vertical spread, Will we be issue the stock if we chose not to exercise both the buy call option?
Cornholio777 (5 months ago)
02:40 I'm struggling to figure out how you gonna make $250.00 on the short $80 when you are out of the money and it's worthless? Please show me the math
Jarod Tupak (1 month ago)
+CrazyMonkeyKing4 thank you for the explaination...
CrazyMonkeyKing4 (4 months ago)
It's because that is a call that is written and sold by him to someone else. If the price of the underlying goes above $80 per share he's responsible for buying 100 shares of and selling it to the person who the call was owns the call option. This is not in his favour if he has to buy the stock at say $81 each and then sell it to someone else at $80 dollars each. He wants the price of the underlying stock to remain under $80 to prevent this situation from occurring.
Cornholio777 (5 months ago)
It sounds like you break even but you save $250.00 in the strike price because we are risking only 500. In which scenario do we make money on the short 80 call? On the vertical Put, do you short buy high and sell low on vertical spread?
Daniel Levi (6 months ago)
How do you get $ 2 commissions?
dara youngsophean (6 months ago)
http://www.forextime.com/register/fxtm-the-global-authority?raf=50a221e2
Sam Rosenberg (6 months ago)
Can someone explain how we can sell a call without owning 100 shares of the underlying? It seems like most options :strategies" require you to own the underlying to execute the strategy
Gen Y (6 months ago)
I usually don't leave comments, but could not resist on this well put and we'll explained videos. And giving the example at the end of the video WOW it made my day. Great job!!
Fareed A (6 months ago)
Very helpful! Thank you.
DuuudeMaaan (6 months ago)
Great video. Made it easy to understand
Gergo Vigh (6 months ago)
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Blake Malcolm (7 months ago)
Why wouldn't you just buy a long call at 75 - that would be cheaper than buying a call in the money and you don't limit your upside potential?
Sky View Trading (7 months ago)
Because in that case, you're hit hard by time decay. Not only does the stock has to move, it has to move big for you to even break even... With this strategy, time decay does not hurt you and even if the stock stays flat, you will breakeven.
Ankit Patel (7 months ago)
Awesome video
Giovanni Garibotto (8 months ago)
Hello, regarding doing puts perhaps i purchase at X then on bracket i do profit taker 10% down so if i win appears negatives numbers on monitor so i dont understand please help ☺ if the software is that way or i am makimg mistake, thanks.
m0wn3d (8 months ago)
Thanks for your videos. I learned a lot. Love your voice btw. :-)
Jon Snow (8 months ago)
I just watched this and think I understand but, after some digging it looks like Robinhood (the place I usually buy stocks) doesn’t allow shorting atm.
Sky View Trading (8 months ago)
This is why Robinhood is not a great brokerage firm in our opinion. There are many others that are better. www.skyviewtrading.com/preferred-broker/
Dan A (8 months ago)
Hi, thank you for the video! But when I try to place a long vertical spread in thinkorswim, my max loss always greater then my max profit, why is that?
invisible gank (8 months ago)
Yo in your video the short 80 makes profit no matter what the stock does that is not possible
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Kyle (9 months ago)
If anyone can help me out here, I’m a young investor just stating out and have tasted making some money so I’m looking into deeper strategies for options trading, so great video but my question is that what happens when you sell a call option or when it expires? We make money from that? I thought we’d lose it because the price didn’t go above 80 so it expires worthless and we lose all that money. Any clarification would be great!
Judy Derby (9 months ago)
I have a put option that expires this Friday. The option is selling at 3 cents, and my account won't let me sell to close in less than 5 cent increments. I am worried about getting assigned. (I don't know what's going to happen.) But if I do get assigned to buy the underlying shares, my strike price is $2, and the shares are selling at $2.40. Couldn't I turn around and sell the shares and make my money back?
Alexander Golovin (9 months ago)
I don't understand why you would buy the 70 Strike options when you think the stocks will go up.
AIR LEBRON (5 months ago)
Alexander Golovin ya doesnt make any sense..its like reverse
سبحان الله (9 months ago)
ممتاز لو يترجم
Eric Kirby (9 months ago)
In this strategy, you are keeping your options until expiration?
Jennifer Gonzalez (10 months ago)
Why do you still make +250 when your short is worthless at 80?
reydorf davidson (10 months ago)
What approval levels do u need to trade define risk
marlm10 (10 months ago)
Do you always buy itm?
Jun dela Cruz (10 months ago)
If the call expires in the money the single $75 call profits $5 x100 = $500 while the vertical Bull Call Spread results to $500 -$250= $250
Mr.Futures Trader (10 months ago)
If you sell a call though aren’t you obligated to buy the shares if shit hits the fan? I don’t even think I have an account able to sell a call.
Narasimha Vempaty (11 months ago)
I traded amzn spreads with call options using techniques detailed here. With expiration still almost 5 days away, the break even, profit etc calculated here in this video are no where near the actuality. After I made the debit trade, amzn shot up by 20 points blowing past my short call strike by 4 strikes still my position is just break even! May be $5 spread is not good enough for a 1400 a share stock like amzn.
Taylor Oxelgren (11 months ago)
Yea but don't you need the shares to sell the cull?
rodrigo davalos (1 year ago)
Great video, thank you for the clear explanation. I have a question however, What if I buy a call option 6 months out, but three months go by and the stock is down. Can I still do this vertical bull strategy although there's 3 months left until expiration?
Scott Ramsay (1 year ago)
The clearest description of vertical spread I've seen
Mike G (1 year ago)
any advise for the best expiration week to pick if you're day trading these verticals?
Alonzo C (1 year ago)
The thing I don't get is why would anyone trade a raw option? This reduces trading price and limits risk
Eduardo Acevedo (1 year ago)
Hello i like a lot your videos. I just have a question How do you get the breakeven $77.50 min 0:59 for the long call, significant amount.
Honest Mike (10 months ago)
In this example he bought the $70 strike call and the price of the contract is $7.50. You add the price you paid for the contract to the strike price. $70+$7.50 = $77.50. So the stock needs to go to $77.50 just for you to break even. Anything higher is profit. 1 contract = 100 shares.
Pravin Mistry (1 year ago)
wow! Absolutely awesome explanation of vertical spread. Thank you so much, sir!
T M (1 year ago)
i need to see someone do this live in a video. I've watched this so many times but i don't get it
jay fox (3 months ago)
wait a minute here how can I make 90% profit when I spend 500 on a 450 dollar return?
Chris Szabo (1 year ago)
I’m a little confused when he says we’re going to buy a call option at 7.5 which costs $750 and then we’re going to sell an OTM put at 2.5 for -$250. How is this -$250. The video makes it seem like it’s a free 250 dollars. Because wouldn’t the total cost he $1,000 initially?
michael s (1 year ago)
To Christ, and others: first, there are no puts in this example. You are buying one call and selling one call. Only the strike prices are different. (Yes, it is also possible to do a vertical put spread, which involves buying one put and selling one put, but the example in the video deals with a vertical call spread.) The price of the underlying will either [1] go up significantly, [2 ]go down significantly, or[3] stay about the same. With a vertical call spread, you will make money in conditions 1 and 3, and your losses will be limited in condition 2. Second, you get $250 for the call you sold like this: you sold the call for $2.50 *per share*, multiplied by the number of shares controlled by one contract, which is 100, so 2.50 times 100 equals $250. If the call you sold is not exercised (because it does not hit the strike price), then you would keep the 250 if you hold to expiration. However, you will normally close the spread position before expiration, in which case you will be buying back the call you sold at a lower price and pocketing the difference. The price at which you buy back the unexercised short call depends on what the price of the underlying (stock) does in the meantime. Your broker will caculate all that automatically at the same time as the value of the long call, since you buy and sell them together as a single order (that is, you buy and sell the spread as a unit, not one component at a time). The speaker was trying to keep the details simple so you can grasp the key ideas more easily. I didn't know this would take so much typing!
jay fox (1 year ago)
SO selling an in the money call and buying an out of the money call is a short vertical spread?
Don de Leon (1 year ago)
@2:52 I'm confused. How did you make $250 on the short 80 call @ 2.50 if the stock only got up to $79.50?
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Jigar Patel (1 year ago)
So when trading a Vertical spread, can only choose two different strike prices from either "Call" side or "Put" side?

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