Option Trading Example Vertical Spread

in optiontrading •  5 years ago 

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I have talked about options trading but today I wanted to review an actual trade on the TastyTrade platform.
This is an example of a vertical spread trade.

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This is a vertical spread trade. The red is a call option I sell and the green is the call option I buy. The SPY is currently priced at 314.31 per share.

The profit from this trade is also called the credit. The cost of the red one I am selling minus the cost of the green one I am buying is 10 cents. It’s a contract of 100 so the total difference is $10.00.

My total profit is $10 minus trading commission.

This is the next screen of the interface which shows an estimated chance success of 77%, and a very small .

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I usually sell only credit spreads where the credit is at least 33% of the risk. For example a 33 cent credit and a one dollar spread. The difference between the strike prices is called the spread. Do when the two option prices are the 324 and 325 the difference is a dollar.
You will notice the trade is at the 1 STD line or one standard deviation which the 34 percentile. The market price 314.31 is the 50th percentile. At the one SD line there is a 50+34 or 84% chance of the stock closing below this price of 324 and us winning money on the trade. The risk of losing is 100-84 or 16%.

The strike prices are selected according to risk I chose the 1 SD point as a low risk high probability trade 84%. The difference between the option I sell and the option I buy is called a credit when it's positive and a debit when it's negative. I usually trade credit spreads.

The green are is the potential stock price movement where we make a profit. The red area is the potential stock price movement where we lose money. The green area is much bigger because our chance of winning is much greater then losing.

Conclusion

The check list here includes Yes

  1. Liquidity its SPY so liquiid. Yes
  2. Bid ask spread less the 5$ yes here is 5 cents. Yes
  3. Enough time to right. Expiration 35-45 days out. Yes
  4. Credit 33% of the potential loss.No

Stop here we are making this trade.
There isn’t enough profit or premium to make it worth the risk.

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So this is the actual GUI for the platform? The graphics are nice

Posted using Partiko iOS

Thanks
This is on their mobile. Their desktop version is even better

Thanks This is on their
Mobile. Their desktop version
Is even better

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