Nice Vertical Spread Explanation

Discussion in 'Options' started by xyannix, Jan 17, 2013.

  1. xyannix


  2. Thanks for that simple explanation. Now, why would one pick a bull call spread vs bull put spread? Is the bull call more "bullish"?
  3. The main reason for picking one style over the other is..... deciding which way are you more comfortable, in terms of thinking about, setting up, and analyzing the trade.
    For example, I'm more used to thinking about a bullish trade in terms of a selling a bull put spread.
    I could just as easily select a bull call spread, but then I'd have to think about setting up the trade the "opposite" of what I'm used to thinking about.
    It's really that simple.
    If you are just as comfortable thinking about both trade set ups, then you can rotate if you'd like.
    But for me, I prefer the "consistency" of thinking the same way, each time I set up a bullish trade.
    I love "consistency". Less chance for accidental screw ups.
    Others may have additional reasons.
  4. I look at volatility when deciding if I want to buy or sell premium.
  5. Both are equivalent and perform the same job with identical returns and risk (identical being used in the loose form).

    A few key differences in particular for us retail people:

    1. The credit spread (bull put spread) if working fine by expiration will carry lower commissions as you only need to let both options expire OTM (no need to close the position).

    2. Closely related to #1, the debit spread (bull call spread) won't close for the max profit in expiration day because of the commissions involved and also because the person on the other side of the closing trade would like to get something out of it even if is a few cents.

    3. Some retail brokers will require that you have the spread difference times number of contracts as initial margin in your account before letting you open a credit spread (bull put spread) so for instance if the distance between the strike is 5 and you are opening 10 contracts, you will need at least $5000 in your account before initiating the trade not matter how much credit you will receive afterwards. In the other hand it could be possible to open the same position as a debit spread (bull call spread) with a lower account balance as the cost would be substantially lower than $5000 (if you actually want to make money on the trade).

    Hope this helps.
  6. Oops, didn't finish. Or monthly services that screen stocks, or analyze the markets, etc. I am thinking that I'm likely looking at about a $200/month expense to get the support and guidance I need. Is this reasonable and what components (not necessarily brand, but "type") should I be purchasing?
  7. I see that my first part of that message did not get posted. I said that I appreciagted the thoughts posted on my call vs put bull spread question. My next question had to do with the volatility issue brought up. Where is a good place to go to get this information about a particular option, and I maight add that I am only trading monthly options at this point?

    The tail of the post was my request for any suggestions about what types of services should I be looking to subscribe to for increasing my chances of success? I currently use ETRADE but realize that at the current platform level, which is free, that I cannot see the deltas, thetas, vegas, etc. Also, I am looking at for charts.

    I realize that I should subscribe to some services while other free ones are just fine for other services. So can someone make some suggestions here about what components I should be including, and about what these services cost? I figure I might have to spend about $200/month for what I need but don't know if this is way low or unneccesarily high.

    Thanks for the input, in advance.
  8. optionslinger,

    i think someone said recently on one of the threads not to pay for anything...i pretty much agreee...

    get a sim trade account at option monster, they also have many recorded webinars....
    i think optionxpress also has sim accounts, and i know on the funded accounts they have trade suggestions, dont know if you can get the suggestions on the sim only account...
    also go to the CBOE and look at all their free stuff...

    with that said, i also have some opinions on pay sites, i have tried many, so if you have any in mind, ask....
  9. xyannix


    Use Finviz to screen for stocks. Use ATR & Volatility in the screen. Also, Avg Volume, Share Price + $10

  10. My two sense.... I do trade credit spreads...

    I personally see more risk in a Put spread then a Call spread. I do far OTM (Delta of 5 or less) spreads. On a Call spread if the market jumps, there will be a pull back on profit taking. On a market drop, there is a higher probability that the market will drop farther and faster as investors try to exit their positions.
    #10     Feb 8, 2013