One options advisory firm recommends selling and buying put options at different strikes on an underlying in the same time frame, resulting in a credit trade. For instance, buying one XYZ May 112 Put and also simultaneously selling one XYZ May 114 Put with XYZ trading at 116. I'm still rather new to this and am not familiar with this particular method. What is this method called? What would my exposure be at closing?
Sounds like a bull put spread. Ignoring the premium received/paid, what you're doing is betting the price stays above 114 (by way of selling the 114 put), but if it goes below 114, you are capping your max loss to $2/share (by way of buying the 112 put). More important than the name is to understand what the implications are. Your maximum loss potential is: $2/share - premium received from selling the 114 put + premium paid by buying the 112 put. Your maximum profit is: premium received for selling the 114 put - premium paid by buying the 112 put. For the sake of completeness -- 1 options contract is for 100 shares, so make sure you don't do a trade thinking 1 option = 1 share.
edstile... before you plunge into the world of newsletters and option advisory services, try to get the basics down cold first. Read the Option 101 books by Sheldon Natenburg, Lawrence McMillan then move on to Option 102- Charles Cottle, Najarian. Will give you some discernment which you will need as you navigate this space- ie selling premium when vix at historic lows,etc.
It is much better to sell 1 put at x month, and buy 1 put at y month. The diff between x and y will determine your max risk per contract. You can use model price and deltas to gauge pricing. Best suited to certain markets. Best suited to certain strikes. Once you get in on it, it is relatively easy, but you must never get excited and start over trading when you think you now know something, as that will be the day you start to lose. Oh yes, chart reading skills will save you more money than complex formula!
I would suggest that you make a payoff graph to help you visualize what is happening at expiry. The Y axis is your profit or loss and your X axis is your stock price. The max loss and Max gain will be capped. The example is a put credit spread. The max loss is $2+commission - credit received for spread. The max gain is the credit received minus commissions. The bid/ask spread plus commission is going to make it difficult to get a reasonable profit. The other risk is the stock landing between the strikes on expiry. If you don't unwind the spread, the broker will charge a fee to exercise the short putt and you will be long stock on a Monday as a result with unlimited risk down to 0. The margin will be much higher. Stay small and limit your exposure till your ready to move on....