there are so many different options
strategies out there that are available
to you as an options trader
but today's video is incredibly
important because we will be focusing on
arguably
the four most powerful options trading
strategies
that you can trade as an options trader
and let me just tell you
if you can master your understanding of
these four vertical spread strategies
today
you will make a massive leap forward in
your options trading expertise and
knowledge
and that's because if you understand
these four vertical spread strategies
you will essentially
understand eighty percent of the option
strategies
in existence specifically i'm going to
teach you these four strategies using
numerous examples
and trade performance illustrations so
that you can fully understand
how these strategies perform relative to
changes in the stock price and the
passage of time
before we get started i should note that
there are prerequisites for this video
this is considered at least in my
opinion the second installment of my
options trading for beginners
ultimate guide and i'm going to assume
in this video that you have an
understanding of how buying call options
and put options works
how shorting call options and put
options works and
i will also be assuming that you
understand what intrinsic and extrinsic
value are
without further ado let's get started so
today's video is all about vertical
spreads
but what exactly is a vertical spread a
vertical spread is the combination of
two options trades that are placed
simultaneously
the first trade is purchasing a call or
put option at a strike price
and then the second component of a
vertical spread is shorting
another caller put option at a different
strike price
now you'll be using either calls or puts
as a quick example of a vertical spread
let's look at a vertical spread setup in
apple in this image we can see a call
vertical spread that i've queued up in
apple by purchasing the 140 call option
and shorting the 150 call option
this is an example of a vertical spread
because i am purchasing a call option at
one strike price
and shorting another call option at a
higher strike price
now this is called a vertical spread
because you're trading two different
options at different strike prices
within the same expiration and the
strike prices are listed vertically on
the option chain
so you're basically creating a spread
vertically
when you're looking at it on the option
chain at least that's how i interpret it
but why would somebody want to trade
this vertical spread as opposed to
simply purchasing that 140 call all by
itself
let me go through a real quick
demonstration by hopping over to my
brokerage platform
which is tastyworks and by the way if
you are in need of a brokerage account
and you're interested in tastyworks
please check out the links down in the
description below and you'll learn how
you can get my exclusive
s p 500 options trading course when you
open and
fund your first tastyworks account using
the project option
referral code and look i don't make
money on this channel by having you pay
me out of pocket
and by using that referral code and
opening a tastyworks account if you are
interested
it's a phenomenal way to support me in
the channel and that's how i prefer to
make my money
through things that don't cost you
anything and that actually connect you
with things
that are valuable to you so go ahead and
check out those links in the description
if you are interested so let's check out
this trade
right now so i'm going to look at apple
and
right now apple is down about seven
dollars today with the stock price
around 124
so let's go ahead and look at a 120 call
purchase
in the october expiration cycle if i
wanted to buy the 120 call option in
apple today
it's currently listed at a price of
about eleven dollars and sixty cents
and with that i would have to basically
put up
one thousand one hundred and sixty
dollars to enter this call option
position
but what if i didn't want to spend so
much money on this call option
but i still wanted to have a trade that
would make money when the stock price
increased
and let's say i thought apple might
increase to 130
over the next 43 days instead of just
purchasing this 120 call option
i could also short the 130 call
option and by doing so i reduce the cost
of my trade
from around eleven hundred dollars to
four hundred and thirty five dollars
now this not only reduces my risk but it
reduces my break-even price as well
so the break-even price for this
vertical spread here
would be 124.35 which essentially means
i only need apple to be at one
124 35 at expiration for this spread to
not make or lose any money
but if i were to just purchase that 120
call option
for eleven dollars and forty cents then
my break even price would be one thirty
uh one hundred thirty dollars and forty
cents so
by doing a vertical spread trade you can
actually reduce your risk
and you can make it a higher probability
trade that you can make money on
because your breakeven price will be
much more favorable
as opposed to simply buying that call or
put outright
so now that we've briefly touched on
what a vertical spread is and why
somebody would want to trade one as
opposed to simply trading an option by
itself
let's look at the four vertical spread
strategies in depth so that you can
fully
understand each of these four strategies
and then we'll move on to the more
important
and exciting topics in my opinion now i
will warn you this is going to be a
fairly repetitive and lengthy section of
the video
so by all means if you want to skip
ahead because you're starting to grasp
the strategies very quickly
and you want to go to the more unique
and exciting topics near the end of the
video
please feel free to do so and you can
look at the playhead on the video which
is
sectioned out or you can go to the video
description and click on the timestamps
to access various sections of this video
by the way if you are enjoying
this video thus far and you like what
you see please give this video a thumbs
up
and hit that like button down below and
if you're new to the channel and you
have no idea who i am
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subscribing
the first of the four vertical spread
strategies we will cover today is called
the bull
call spread now as the name suggests the
bull call spread
is a bullish options trading strategy
that is constructed
using call options the bull call spread
is constructed by
purchasing a call option at one strike
price and simultaneously shorting
another call option at a higher strike
price sometimes the bull call spread is
referred to as simply buying a call
spread
or a call debit spread so these vertical
spreads have many different names
and it depends on the trader you're
talking to so you'll just have to
familiarize yourself
with the various names of these spreads
with experience
so we're going to look at a real
historical bull call spread
and we're going to see how the trade
performed over time
relative to changes in the stock price
so let's check out the characteristics
of this bull call spread example
the stock price at entry is
and 28 142.28 and to construct this call
spread
we're going to buy the 135 call for nine
dollars and 30 cents
and we're going to short the 150 call
for 1.54 cents
both of these call options are in the 46
day expiration cycle
the purchase price of this spread is
7.76
which comes from the fact that i bought
the 135 call for 9.30
and shorted the 150 call for 1.54 cents
bringing my net payment for this spread
to 7.76
now this means i actually need 776
dollars to purchase this spread
because we need to multiply that spread
price by the option contract multiplier
of 100
and that's something you will have
learned in the options trading for
beginners video
the break-even price for this spread at
expiration
is 142.76 and that comes from the
calls strike price of 135 plus the entry
price
of 7.76 now i just did a video
explaining breakeven prices in depth so
if you are
unfamiliar with how break-even prices
are calculated
or why they make sense be sure to check
out that video in the description
on how to get any strategies break even
price at expiration
so before visualizing the performance of
this trade through time
let's actually look at the risk profile
for this position at expiration
so we can understand at expiration what
the profits and losses will be for this
position
based on various stock price scenarios
the first thing to know is that this
strategy has limited risk
and the most the strategy can lose as
described earlier
is the entry price or entry cost of 776
dollars
so if i buy this spread for 7.76
and it expires worthless my loss will be
776 dollars
and that will occur if the stock price
is at or below
135 dollars at expiration because if the
stock price is at or below
135 the 135 call and the 150 call
will both expire worthless and therefore
the spread itself will be worthless
the break-even price of this call spread
is 142.76
at expiration and that means if the
stock price is at
142.76 at expiration
the 135 call option will have intrinsic
value
of 7.76 but the short 150
call will have zero dollars of intrinsic
value
and therefore the net value of the
spread would be
7.76 which is the same
as the entry cost and therefore the
position will not have a profit or loss
if the stock price is exactly at 142.76
at the time of expiration and lastly the
maximum profit potential of 724 dollars
will occur if the stock price is at or
above the
upper strike price of 150
at the time of expiration and that's
because the maximum value of any
vertical spread at expiration
is the width of the strikes and in this
case the call spread
has strikes that are fifteen dollars
apart which means the maximum value of
this
call spread at expiration is fifteen
dollars
or a actual value of fifteen hundred
dollars
so if i buy this call spread for a entry
cost
of seven hundred and seventy six dollars
and it appreciates to its maximum value
of fifteen hundred dollars my profit on
the trade will be seven hundred and
twenty four dollars
the reason that this call spread can
only be worth fifteen 15
at expiration is because if the stock
price is
fully above the call spread meaning the
stock price is at or above
150 if we take the intrinsic value of
the call option that i own
and subtract the intrinsic value of the
option that i'm short
it will always come out to 15 at
expiration
so for example if the stock price is at
155
at expiration the 135 call that i own
will have twenty dollars of intrinsic
value but
the 150 call that i am short will have
five dollars of intrinsic value and
basically what that means is that if i
want to
close that spread at expiration i could
sell the 135 call for twenty dollars
collecting two thousand dollars in
premium and i could
i would have to buy back the short 150
call
for five dollars therefore paying out
five hundred dollars in premium
and that would leave me with a net
premium collection
of fifteen hundred dollars at expiration
so this is the expiration payoff graph
which only really matters at expiration
but how did this strategy actually
perform as the stock price changed over
time
let's take a look on the top portion of
this graph we have the changes in the
stock price
relative to the strike prices of this
call spread and on the bottom portion of
the graph
we're looking at the actual changes in
the spreads value
as the stock price changed in the first
few days of the trade
the stock price drifted lower which
caused the call spread to lose value
if the spread price declines from the
price you pay for it you'll have an
unrealized loss fortunately we can see
that the stock price rocketed higher in
the subsequent weeks
leading to an increase in the call
spread's value
you'll notice that there was a moment
where the stock price was above the
entire call spread
but why wasn't the spreads price 15
because i know i said that the maximum
value of the spread at expiration
would be fifteen dollars if the stock
price was above
one hundred and fifty dollars well we
will talk about that later in the
section titled
vertical spread profitability versus
time to expiration
at around four days to expiration the
spreads price was very close to its
maximum value of fifteen dollars
it's worth mentioning here that you can
close a vertical spread whenever you
want to
you don't have to hold until expiration
if the maximum potential value
of the spread is fifteen dollars and the
spreads price gets close to fifteen
dollars
then it makes sense to close the trade
because you have very
little left to gain from holding it but
you have everything to lose at the very
end of the trade we can see that the
stock price did dip
lower and the call spread lost
substantial value
and that's exactly why a spread should
be closed when it approaches the maximum
potential value
it's really not worth holding at the
time of expiration the stock price was
at
148.06 leaving the trade with a profit
of five hundred and thirty dollars
but where does this profit come from if
the stock price is at
one hundred and forty eight dollars and
six cents at expiration
the 135 call will have intrinsic value
of 13.06
while the 150 call will have no
intrinsic value
and expire worthless therefore the value
of the spread at expiration
is limited to the intrinsic value of the
135 call
which is thirteen dollars and six cents
meaning that
in actual dollar terms the spreads value
would be thirteen hundred and six
dollars
and if i buy a spread for seven hundred
and seventy six dollars
and it expires with a value of one
thousand three hundred and six dollars
my profit is five hundred and thirty
dollars so what we've learned with this
example
is that when you buy a call spread or
you trade a
bull call spread you want the stock
price to increase
and ideally you want the stock price to
be above
the upper strike price of the bull call
spread at the time of expiration
as that is a scenario that will result
in the spread
having its maximum potential value which
we also learned
is the distance between the strike
prices so if i have a
twenty dollar wide vertical spread the
most it can be worth is twenty dollars
if i have a one 100 wide vertical spread
the most that spread can be worth at
expiration is 100
so keep that in mind we also saw that as
the stock price goes up and down
so does the value of the call spread and
this is important to
understand because when you enter any
option position
it's not a binary event where you only
get the profit or loss at the time of
expiration
the option prices or the options spread
in this example
will change every minute of the day as
the stock price is changing
and you can get out of that spread or
option position
whenever you want to so just because it
has an expiration date
it doesn't mean you have to hold until
the expiration date so to close the call
spread in this example
since i bought the 135 call as an
opening trade
and i shorted the 150 call when i opened
the trade
to close this call spread i just have to
sell
the 135 call that i own and buy back the
150 call that i am short
and you can do this in one transaction
at one spread price
and effectively that will realize
whatever profit or loss you have on that
spread
at that moment so you never have to hold
a spread until expiration
you can close it whenever you want so i
could buy a call spread and sell it five
seconds later if i wanted to
i can get out whenever i want to alright
let's move on to the second
bullish vertical spread which is called
the bull
put spread as the name suggests a bull
put spread
is a bullish vertical spread constructed
with put
options as opposed to call options which
we just discussed
to set up a bull put spread a trader
will
short a put option at one strike price
and purchase
another put option at a lower strike
price
now this is sometimes just referred to
as selling or shorting a put spread
but it is also referred to as a put
credit spread
because when you enter the trade you
will collect a net credit
meaning the option that you sell is more
expensive than the option you purchase
and therefore you will collect premium
when you enter the trade
and that's why it's called a credit
spread the goal when trading a bull put
spread
is to see the stock price increase but
at the very least
the trade can make money so long as the
stock price remains above
the short put strike price as time
passes
so if the stock price is here and you
sell this put spread here
you can make money so long as the stock
price remains above this put spread
and that means it is a high probability
trading strategy
meaning that you have a greater than 50
percent chance
in theory of making money on that trade
so just like we did before
let's go ahead and look at a real
historical example
in this example the stock price is at
146.92
at the time of entering the trade to
construct this bull put spread
we will short the 145 put and collect
six dollars and sixty cents
and simultaneously purchase the 135 put
for three dollars and seven cents both
options are in the 46 day expiration
cycle
the entry price for this spread is 3.53
that is received since i shorted the 145
put and collected 6.60 and paid
seven cents to buy the 135 put
so a net premium is collected at entry
the break even price for this particular
position
is 141.47 and that means if the stock
price is at
141.47 at the time of expiration
then this put spread will not make or
lose any money so remember earlier i
said that the maximum value of a
vertical spread
is the distance between the strike
prices and in this case
since the put strikes are 10 apart the
maximum value of this put spread at
expiration
is 10 so let's look at the expiration
payoff diagram for this particular
bullet put spread position
so as we can see here the best case
scenario is that the stock price is
above the entire put spread at
expiration
if the stock price is above 145 dollars
at expiration
the 145 put and the 135 put
will have no intrinsic value and
therefore will expire
worthless leaving the spread with a
value of zero dollars
if i collect three hundred and fifty
three dollars for this spreaded entry
and the spreads price falls to zero i
will effectively make 100
of the profit potential or 353 dollars
and so when you short a put spread like
this you want all of the options to
expire worthless
which will happen if the stock price
increases and is above
both put spreads strike prices at the
time of expiration
the expiration break even price of this
position is 141.47
which means if the stock price is at
141.47 at expiration
the 145 put will be worth its intrinsic
value
of 3.53 and the 135 put will be
worthless
and lastly the maximum loss potential of
this position is 647
which will occur if the stock price is
below both put spread strike prices at
expiration
if the stock price is below 135 dollars
at expiration
then the put spread will be worth its
maximum value of
10 dollars which again is the distance
between the two strike prices
so if i shorted this spread initially
and collected three hundred and fifty
three dollars in premium
and the value increased to one thousand
which is its maximum value then i will
lose
six hundred and forty dollars so let's
go ahead and take a look and see exactly
what happened to this bull put spread
in real life as the stock price was
changing up and down
through the trades duration so again the
top portion of this graph features the
changes in the stock price relative to
the spreads
strike prices as we can see early on in
the trade
the share price was falling which
actually caused an increase in the put
spread's value
and since the bull put spread is a
bullish strategy it will lose money when
the stock price falls and it will make
money
when the stock price rises fortunately
the shares regained traction
and headed higher throughout the
remainder of the trade and we can see
that the further
the stock price increased and as time
passed the spread's value
collapsed at around 17 days to
expiration the spread's value was
already very close to zero dollars which
means the trade
essentially already had the maximum
profit potential
and at that moment a wise trader would
close the put spread to secure
the near maximum profit closing the put
spread would entail
buying back the short 145 put and
selling
the long 135 put the p l on the trade
would therefore be the difference
between the hundred and fifty three
dollars in premium collected
at the time of entering the trade and
whatever they paid to close the spread
so if they paid twenty dollars to close
the spread
the profit on the trade would be three
hundred and thirty three
but as we can see the spread continued
losing value and
ended up with the maximum profit at
expiration
because with the stock price at 157
dollars and two cents at expiration
the 145 put and the 135 put
had no intrinsic value and therefore the
spread's value was zero dollars
so thus far we've covered both of the
bullish vertical spread trading
strategies which are the bull call
spread which is buying a call spread
and the bull put spread which is
shorting a put spread
so one of those is referred to as a
debit spread meaning you pay to enter it
which is buying the call spread and one
of those is referred to as a
credit spread which means you collect
premium when you enter the trade
and that is when you sell or short the
put spread
so you may be wondering when would you
use the bull call spread and when would
you use the bull put spread
and we'll talk about that later in this
section titled how to select the right
strategy
but for now we need to move on to the
bearish vertical spread trades
which are the bear call spread and the
bear put spread
so let's get started so the first of
these bearish vertical spread trades
that we will cover
is called the bear call spread which is
basically when you sell a call spread
or short a call spread so the bear call
spread
is sometimes referred to as simply
selling a call spread
a call credit spread and that's it the
next strategy we will
cover is called the bear call spread
which is referred to
sometimes as selling a call spread or a
call
credit spread and a bear call spread is
constructed by
shorting a call option at one strike
price and purchasing another call option
at a higher
strike price so it's basically the bull
call spread from earlier
except you do the opposite and instead
of buying the call spread
you actually short or sell the call
spread as your opening trade
and a bear call spread will make money
as long as the stock price remains below
the call spread strike prices so if you
sell this call spread and the stock
price is here
it doesn't matter if the stock price
goes up a little bit as long as the
stock price is below
the vertical spreads strike prices the
trade will make money as time passes so
let's look at an example
in this example the stock price is at
141.46 at the time of entry
and to construct the spread i will short
the 142 call for 1.93
and buy the 145 call for 87 cents
both options are in the 32 day
expiration cycle
so the entry price for this spread is
1.06 that is received
since the call that i shorted the 142
call
is more expensive than the call that i
purchase and this results in a net
premium collection at the time of
entering the trade
so let's look at the expiration payoff
graph for this position
as we can see the best case scenario is
that the stock price is below
142 at expiration as that would lead to
the 142
and 145 calls expiring worthless
which means the call spreads value is
zero dollars
if i short the call spread for one
hundred and six dollars and it expires
worthless
i'll make the full profit of one hundred
and six dollars
the break even price is one forty three
oh six which means if the stock
price is right at 143 dollars and
six cents at expiration the 142 call
will have intrinsic value of one dollar
and six cents
and the 145 call will expire worthless
leaving the spread with
a value of one dollar and six cents no
profit
no loss now if the stock price is at or
above the upper strike
of 145 the call spread will be worth its
maximum
price of three dollars because the
strike width is
three dollars and again we have to
multiply these figures by 100 to get
their actual values
so if i short the spread for 106 dollars
and it appreciates to a value of 300
i will lose 194 dollars
but this is just the expiration payoff
graph and we know that this does not
reflect
what will happen before expiration so
let's go ahead and look at a performance
visualization for this position
to see exactly how the trade performed
relative to changes in the stock price
as time was passing the first thing to
note is the correlation between the
stock price and the spread price
and since this is a bearish call spread
trade i want the stock price to fall
and be below 142 at expiration
about halfway through this trade with 17
days to expiration
we can see that the stock price was
approaching the 145 dollar price level
and we can see that the spreads value
was at two dollars
representing a unrealized loss of about
ninety four dollars at that time
but as a few more weeks passed we can
see that the stock price declined
steadily
and with two days to expiration the
stock price was well below the call
spread strike prices
and the spread price itself was almost
zero dollars
so with the best case scenario being
that the spread price falls to zero
dollars
it would make sense at that moment to
close that spread
if the price gets close to zero dollars
now to close a short call spread meaning
a cost per that you sold as an opening
trade
you just need to buy back that same call
spread to close it
which would consist of buying back the
short call and selling the long call
so in this trade that would mean buying
back the short 142 call
and selling the long 145 call and this
can be done in one
transaction so if i paid 20 cents to buy
back the spread
my net profit would be 86 because i
initially shorted the spread
for one dollar and six cents in terms of
this spreads value at expiration
the stock price was at 142.26
which means the 142 call had intrinsic
value of 26 cents
and the 145 call expired worthless
therefore the price of the 142 145
bear call spread at expiration was 26
cents
or a real value of 26 dollars
so if i shorted this spread for 106
dollars
and it had value of 26 at expiration
my profit would be eighty dollars all
right so we've got
one vertical spread strategy left and
then we will get to the fun stuff
at least in my opinion because the next
sections are going to be
critical in your understanding of
vertical spread profitability
and how you can make more and more money
on your vertical spread positions
the final of the four vertical spread
strategies that we have to discuss
is the bear put spread which is
sometimes referred to as simply
buying a put spread or a put debit
spread
since you pay to enter the put spread to
enter
a bare put spread position a trader will
buy a put spread at one strike price
and short another put option at a lower
strike price
and the goal is to see the stock price
fall below
both of the put spread strike prices and
that would lead to the maximum profit
at expiration and since the put that you
purchase will be more expensive than the
put that you short when you enter the
trade
this position will require that you pay
to enter the position
and for that reason it is sometimes
called a put debit spread so let's take
a look at an example
and then move on to the more important
and fun stuff at the time of
entering this trade the stock price was
at
and 22 780.22 to construct this bare put
spread
we'll buy the 800 put for 44.88
and short the 750 put for 22.63
both options are in the 59 day
expiration cycle
the entry price of this spread is
therefore 22.25
so let's go ahead and take a look at the
expiration profit and loss diagram
for this position and then visualize the
trades actual performance
the best case scenario is that the stock
price falls below
750 and remains there at expiration
because in that scenario the put spread
will be worth the distance between the
strike prices
which is fifty dollars so if i buy a put
spread for
twenty two dollars and twenty five cents
and it appreciates to
fifty dollars i'll have a gain of twenty
seven dollars and seventy five cents
from the change in the spreads price but
as we know we have to multiply that by
100
and we get a actual profit of 2775
dollars
the break-even price at expiration is
777.75
and if the spread is right at seven
hundred and seventy seven dollars and
seventy five cents at expiration
the eight hundred put that i own will
have intrinsic value
equal to twenty two dollars and twenty
five cents
and the seven fifty put that i'm short
will be worthless and therefore the
spreads price will be
22 dollars and 25 cents and i'll have no
profit or loss
at the time of expiration and of course
the worst case scenario is that the
stock price is above both put strikes at
expiration
in which case both options will have no
intrinsic value and
simply expire worthless in that scenario
i'd end up having a worthless spread
that i paid
two thousand two hundred and twenty five
dollars for in the beginning
leaving me with unfortunately a 100 loss
on the position but this is just the
expiration payoff diagram
so let's look at how this trade actually
performed
as the stock price changed understanding
that this is a bearish trading strategy
it would make sense that the trade lost
money initially as the stock price was
increasing
in the first two weeks or so the stock
price unfortunately went from
778 dollars to almost 850 dollars
and we can see that the 800 750
bear put spread lost value falling from
a price of 22.25
to a low of 10 the decrease to 10
represents an unrealized loss of one
thousand
two hundred and twenty five dollars and
that's because i initially paid
two thousand two hundred and twenty five
dollars for the spread
and a reduction in its price to ten
dollars means the spread is worth
one thousand dollars so we always have
to multiply the spreads price by 100 to
get its dollar value
i know it's confusing but that's what we
have to do as luck would have it
the stock rally did not last long and
the share price plummeted over the
remainder of the trade
and we can see that at 14 days to
expiration the stock price was just
above 750
meaning the 800 750 put spread was
almost
fully in the money the spreads price at
that moment was around thirty four
dollars
or a value of thirty four hundred
dollars
the stock price fell even further
reaching a low price of seven hundred
and twenty dollars
when the spread had around four days
left until expiration
and at that moment the spreads price was
around forty seven dollars and fifty
cents
or just two dollars and fifty cents shy
of its maximum potential value
of fifty dollars and so the trader could
have sold the spread at that moment
for four thousand seven hundred and
fifty dollars
and secured a profit of two thousand
five hundred and
twenty five dollars so to close a put
spread that you've purchased
you simply sell that put spread
in this example that would be done by
selling
the 800 put and buying back
the short 750 put the trader held this
position all the way to expiration
the p l would have been seventeen
hundred and sixty dollars
but where does that profit come from
with the stock price at
seven hundred and sixty dollars and
sixteen cents at expiration
the 800 put had intrinsic value equal to
39.84
and the 750 put had no intrinsic value
and therefore the price of the 800 750
put spread
was 39.84 at expiration
or a value of three thousand nine
hundred and eighty four dollars
and so if i bought this put spread
initially for two thousand
two hundred and twenty five dollars and
it was worth three thousand
nine hundred and eighty dollars at
expiration my profit
is 1 759
so we've covered the four vertical
spread strategies and i know we've gone
through
a lot of examples and a lot of numbers
in these past four examples
but it's important that you understand
the basic mechanics of these vertical
spread trades
and that's going to set you up for the
next sections that we're going to talk
about
which in my opinion are much more
exciting and i love talking about them
and explaining
them and these next sections are going
to talk about
vertical spread profitability versus the
time left until expiration
and also with changes in implied
volatility and then i'm going to talk to
you about how to select
the right strategy for your particular
situation and stock price outlook
and then we'll close out the video by
talking about what happens at expiration
to a vertical spread
and lastly do you have early assignment
risk when you trade vertical spread
positions
so let's get started by talking about
vertical spread profitability
versus the time left until expiration
this is perhaps one of the most
important things to understand about
vertical spread trading
as the time left until expiration has a
significant
impact on how profitable your vertical
spread will be
depending on where the stock price is
the reason this is so important
is that you have to understand one law
about vertical spreads
and the law about vertical spreads is
that to achieve the maximum profit
potential
on a vertical spread position both of
the options
in your vertical spread must have very
little extrinsic value and more
specifically to get to the absolute
maximum profit potential the extrinsic
value
in your options will need to be zero
which will happen at expiration
or if the spread is so far in the money
that the options have very little
extrinsic value or
no extrinsic value so basically the more
time your spread has left until it
expires
the deeper in the money that spread will
have to be to get
close to the maximum profit potential
but
if your spread has very little time left
until expiration
or is expiring this day then the spread
can just be fully in the money and it
will be trading with
very close to the maximum profit
potential and
subsequently expiring with the maximum
profit potential
because if the spread is fully in the
money at expiration
only intrinsic value will remain and the
spreads value
will have 100 of its maximum potential
value which will be
the width of the strike prices so in our
earlier bull call spread example i had
mentioned
at one point in that example that the
stock price was well above
both call spread strike prices meaning
the call spread was fully in the money
but i had noted that the spread's price
was not
15 dollars which is the width of the
strikes instead
the spread's price was around 12 or
three dollars shy
of its maximum potential value despite
being fully in the money
and the reason for that is because the
spread was not close to expiration
it still had multiple days left before
expiration
and because of that the options in that
spread
had lots of extrinsic value and because
of the extrinsic value in those options
the spread's price was not yet at its
maximum potential value
of 15 take a look again at that example
and at around 18 days to expiration we
can see that the stock price is around
150 250 but the 135
150 call spread was not worth its
maximum value of 15
and as i mentioned the reason is because
of extrinsic value
if we just strip out the intrinsic value
of these options
we can calculate that at a stock price
of 150 250
the long 135 call has 17.50
of intrinsic value while the short 150
call has
2 dollars and 50 cents of intrinsic
value and therefore the net
intrinsic value of the spread is 15
which is its maximum potential value and
by net intrinsic value i mean the
intrinsic value that i own
and subtracting out the intrinsic value
that i don't own or
of the option that i'm short so
basically if i need to sell that 135
call
i can sell the 135 call for its
intrinsic value of
dollars and fifty cents and i have to
pay
two dollars and fifty cents to buy back
the short 150 call
assuming that i'm only paying and
receiving intrinsic value
and therefore if i collect 17.50
from selling the 135 call at its level
of intrinsic value
and i pay 2.50 to buy back the short 150
call
at its intrinsic value of 2.50
then i will collect 15 which is the
width of the strikes
or the maximum potential value of that
spread
so why is it important to understand
that the more time left until expiration
the more extrinsic value these options
will have which will prevent
the spread from getting to its maximum
potential value
well the reason it's important is
because if you buy a call spread
or if you buy a put spread and you see a
favorable stock price movement that
leaves your spread fully
in the money you have to understand that
just because the spread is fully in the
money
it doesn't mean that you will have the
maximum profit potential
and that's because if the spread is
fully in the money with lots of time
left until expiration
then there's going to be a lot of
extrinsic value in those options
and therefore the spread will not yet be
trading
at its maximum potential value or the
width of the strikes
so basically if you have a spread that
becomes fully in the money
you basically have to wait for time to
pass for the extrinsic value to decay
out of those options
and therefore the spreads price will
gradually approach
its maximum value or the distance
between the strike prices
so i can prove this to you by just
looking at various vertical spreads
and changing the expiration date or
changing
the vertical spreads expiration cycle so
that we can
basically simulate the loss of extrinsic
value or the increase in extrinsic value
and see how that affects the spreads
price so let's hop over to the
tastyworks trading platform
so i can show you some real examples of
this and we can understand that
a fully in the money vertical spread
will be trading much
closer to its maximum value than that
same vertical spread with more time
until expiration so let's hop over to
the trading platform right now and take
a look
so first thing i want to point out is
it's an absolute bloodbath today in the
market
we have s p down 125
or three and a half percent nasdaq is
down 630 points or
over five percent that's disgusting all
right anyways let's go to
let's go to apple so what i'm going to
do is i'm going to queue up
a vertical spread that is fully in the
money
so for this i'm going to look at it call
spread so apple's current price is
122.75
so i'm going to look at the 100
110 call spread and let's look at a long
dated expiration cycle such as
november 2020 so if i
purchase or queue up an order to
purchase the 100 call
and then i'd queue up an order to short
the 110 call
we can see that this call spread is
fully in the money
because this is the 100 110
bull call spread and apple is currently
at 123 dollars
so this call spread is fully in the
money but we can see that the spreads
price itself
is 6.95 and the most
that this spread could be worth at
expiration is ten dollars
so let's go ahead and look at the 100
110 call option
in a much shorter term expiration cycle
and see
if the spread price is higher or lower
than
seven dollars so right now it's jumping
around a bit because it's a volatile
trading day
but we can still gauge the increase in
this spreads price as time passes
by simply looking at the same spread in
a shorter term expiration cycle
so let's go to september if iq up in
order to purchase the 100 call
and short the 110 call we can see that
the 100
110 call spread with 15 days to
expiration
as opposed to 78 days to expiration
this shorter term call spread that is
fully in the money
is trading for about eight dollars and
85 cents
so basically two dollars more than the
same exact call spread
with 60 days more until expiration and
the reason for this
is that 15 day options have much less
extrinsic value
than 78 day options and for that reason
if you look at an in the money vertical
spread that has
less time until expiration its price
will be much closer to the maximum
potential value
as compared to that same exact vertical
spread with much more time until
expiration
so the next thing we will talk about is
vertical spread profitability
versus changes in implied volatility
which relates directly
to the extrinsic value statements that i
made earlier
because implied volatility literally
measures
extrinsic value in options so if
implied volatility increases that's an
indication that
the options have become more expensive
extrinsically
relative to the amount of time they have
until expiration
and on the other hand if you see a
decrease in implied volatility
that means that the options now have
less extrinsic value
than they had before relative to the
time left until expiration
so basically if we hold the stock price
constant and we have
no passage of time a decrease in option
extrinsic value
results in a lower level of implied
volatility
and on the other side of things an
increase
in extrinsic value holding the stock
price and time constant
will lead to an increase in implied
volatility
so here are two things that you need to
keep in mind and kind of internalize
the first thing is that if you buy a
call spread or you buy a put spread
you want the stock price to move so that
that
spread becomes in the money and if you
buy a call spreader put spread
and it becomes fully in the money you
want
implied volatility to decrease meaning
that you want the options to have less
extrinsic value relative to the time
left until expiration
because with less extrinsic value in
those options
through a decrease in implied volatility
means that the spreads price will
actually
expand towards the width of the strikes
or its maximum value potential so if you
have a 20
wide call spread and the stock price
increases
above both call strike prices you want
implied volatility to decrease
because then that means that these
options have less extrinsic value
and because of that the spreads price
that you have
which is 20 wide will appreciate
towards 20 or its maximum potential
value
the second thing that you should
internalize is that if you short a call
spread
or you short a put spread and the spread
is
out of the money which is a good thing
for you then again
you want implied volatility to decrease
because that means that there is less
extrinsic value
in your vertical spreads options and
less extrinsic value
means that you will see a contraction
in your out of the money vertical
spreads price
because with no intrinsic value if your
spread is out of the money and it loses
extrinsic value which is all that it
consists of
then that spreads price will fall closer
towards zero
which is when you would realize the
maximum profit potential
now i don't like telling you things to
just memorize so let me explain these
things that i've just said
intuitively a broad decrease in the
extrinsic value that exists in a stocks
options
meaning a decrease in implied volatility
means that the option market
is expecting less volatility from that
stock price in the future
which means that there is a higher
probability that the stock price will be
somewhere around its current price
in the future as compared to before so
if you own a call spread meaning you
purchase a call spread
and the stock price is fully above your
call spread strike prices
a decrease in implied volatility meaning
less extrinsic value in those options
means that there
is a higher expected probability that
the stock price will be somewhere around
its current price in the future
which means that there is a higher
implied probability
that your in the money vertical spread
will be in the money at expiration
and if the probability or the implied
probability
of your vertical spread being in the
money at expiration
increases the spreads price will
increase
so basically if your spread is fully in
the money and you own that vertical
spread
meaning you buy a call spread and the
stock price shoots higher
you want implied volatility to decrease
because a decrease in implied volatility
means that there is a higher implied
probability that the stock price
will still be above your call spread
strike price at expiration
and because that means your spread has a
higher probability
of being fully in the money at
expiration the spreads price will
increase towards its maximum potential
value and the same is true if you are
short a put spread or short a call
spread
when you short a put spread you want the
stock price to be above
your put spread strike prices because
then that means the puts
have only extrinsic value which
if the extrinsic value decreases that
means the spreads price will fall
towards zero dollars so if you have a
put spread that you've shorted
and the stock price is above the put
spread strike prices
a decrease in implied volatility means
that the extrinsic value has decreased
in those options
which will lead to a contraction in the
put spreads price
towards zero but the reason this makes
sense is because
if you have a put spread that you've
shorted and the stock price is above
your put spread strike prices
a decrease in implied volatility means
that there is a
lower expected range for the stock price
and therefore
the probability that your put spread
expires out of the money
increases and if there is a higher
probability of your put spread expiring
worthless
the price of that put spread will fall
so if you are short a put spread
and it is out of the money and implied
volatility contracts
that means that there is a higher
probability that your put spread will
expire out of the money
or worthless because there is a lower
expected stock price range than there
was before
when implied volatility was higher you
may have heard that
when implied volatility is low it is
good for debit spreads
meaning when implied volatility is low
it's better to buy call spreads and buy
put spreads
because the increase in implied
volatility
will benefit the position somehow
because you are net
long options i mean you've you've
purchased options essentially
and that's simply not true because if
you
buy a call spread or you buy a put
spread you want the stock price to move
through the strike prices
and when that happens and when your
spread becomes in the money
you want implied volatility to decrease
because
that means there's less extrinsic value
in the options and that means the
spreads price
will increase towards its maximum
potential value
and intuitively that's because if your
spread that you own
is fully in the money and a decrease in
implied volatility occurs
that means that there is a higher
probability or higher
implied probability that your spread
will expire
in the money and if your spread expires
in the money
it will expire with its maximum
potential value
or the width of the strikes so a
favorable movement
with a vertical spread combined with a
decrease in
implied volatility is always a good
thing
the only time an increase in implied
volatility is good
is if the stock price is not in a
favorable
situation meaning if you buy a call
spread and the stock price is below
the call spread meaning the call spread
is out of the money
an increase in implied volatility is
good because it means that there's a
larger
potential range for that stock price or
expected range for the stock price
and that means that there is a higher
probability that your call spread
will expire in the money and because of
that increase in the probability
of the call spread expiring in the money
the call spreads price will increase
but if the call spread is in the money
you want implied volatility to decrease
because you want the implied probability
of the call spread
expiring in the money to increase so i
know this is a lot and it's
it's a little more complicated than the
simple examples that we talked about
earlier
but it is a critical thing to understand
because
it doesn't matter if you are shorting a
vertical spread or if you are purchasing
a vertical spread
if the stock price is moving in favor of
your vertical spread
meaning that your your call spread that
you purchase is in the money
or the put spread that you've shorted is
out of the money you want implied
volatility
to decrease 100 of the time the only
time an increase in implied volatility
is good
is if you own a call or put spread that
is out of the money
or if you are short a call spread or put
spread that is in the money
all right so let's move on to the last
sections of the video which is
first how to select the right strategy
for your given
outlook and then we'll talk about what
happens at expiration and
early assignment risk so given that
there are four different vertical spread
strategies you can choose from
which one should you actually use
depending on your particular scenario or
stock price
outlook it's really a matter of
preference but here are some guidelines
to help you out
first if you are expecting a strong
directional movement
from the stock then in my opinion it
would be better to buy a call spread or
buy a put spread since that would be a
trade that you could structure in a way
to have very favorable risk reward if
you are
right about your strong outlook for that
stocks potential movement in the future
and guideline number two is if you are
not expecting a
super strong movement in either
direction but you want directional
exposure
and you want to place a higher
probability trade
to profit if the stock price moves in
favor of whatever direction you want
but also could move against you slightly
then
in that scenario i think it would be
better to go with the credit spread
strategies
which means you short a call spread in
which case
the strategy will make money so long as
the stock price remains below the call
spread
or you short a put spread which will
give you bullish
exposure but the strategy will make
money so long as the stock price remains
above the put spread strike prices
so let's hop over to the tastyworks
trading platform
and i will show you some example trade
setups with these four vertical spread
strategies
so that you can understand kind of the
differences that you'll get
with different strike price selection
methods and the risk reward that you'll
get
with those trade structures so let's
check it out
so right now i have netflix pulled up on
the trading platform and we can see that
netflix is currently trading for
525 dollars per share
so let's say i think that netflix is
going to
experience a very strong directional
movement to the downside
and i want to profit from that
assumption so i think
netflix will continue losing substantial
value in the share price
of my bearish vertical spread strategies
i could either buy a put spread
and the other option is to short a call
spread
so it's between the bear call spread and
the bare put spread
so let's look at going to the october
expiration cycle with 43 days to go
and with netflix at 525 let's look at
buying
the 525 put and then look at shorting
the 500 put so this would give me a put
spread
with a cost of 11.45
and that means my maximum loss potential
is right around that number let me just
lock this price
so if the price of the put spread is
11.65 my maximum loss potential
is 1 165
but my maximum profit potential is 1
35 so basically the way i constructed
this put spread
is to purchase the at the money option
and short a further out of the money
option so this is just one way that you
could set this trade up
but the reason i like this and the
reason i would suggest
buying a call spreader put spread with a
strategy or structure
similar to this one is because it'll
give you favorable risk reward
and that will be beneficial to you if
you are correct about your strong
directional outlook for the stock so
in this case my maximum profit potential
is slightly higher than the amount i can
lose
and because of that if i'm wrong i will
lose less than i will make if i am
actually right
so if i'm right about my stock price
prediction that netflix will fall
then my profit potential is actually 1
35 and if i'm wrong
then i will actually lose less than that
and my maximum loss potential
is 1 165
so let's compare this risk profile with
the bear call spread
so with netflix at 526
let's look at i could even look at
selling the 525 call
and then purchasing the 550 call
so what we'll notice here is that if i
short the 525
550 call spread which is 25 dollars wide
just like the put spread was that i just
looked at in this case
i'll make money as long as netflix is
below 525
at expiration in 43 days so
since i can sell this spread right now
for and ninety five cents
my maximum profit is one thousand ninety
well let me just lock this if i sell
this for eleven dollars
my maximum profit is eleven hundred
dollars
but if netflix is above 550 at
expiration
then this spread will be worth 25
dollars and if i short it for
11 and it goes to 25 i'll have a 14
loss which means my maximum loss on this
is actually
1 thousand four hundred dollars so when
we compare these two
strategies of either shorting the 525
550 call spread versus buying the 525
500 put spread we can see that this has
less favorable risk reward
so i can lose more than i can make if
i'm right but
the benefit of using this call spread
strategy over the put spread strategy
is that it has a higher probability of
making money because
as long as netflix is below 536
at expiration which is this position's
break even price
this position will make money whereas if
i buy the 525
500 put spread for 10 then i actually
need
netflix to be below 515
at expiration so the reason that i said
if you have a strong
directional outlook for a stock then
buying the spread is probably better
then the reason i said that is because
you'll have more favorable risk reward
if you set it up in this manner but
i have to drop something on you right
now call spreads and put spreads
buying them and selling them are
effectively the exact same strategy
just with calls and puts so buying a
call spread is the same exact thing
as shorting a put spread with the same
strike prices
so let me demonstrate that to you right
now so
as opposed to shorting the 525
550 call spread if i purchased
the 550 525 put spread
which is essentially fully in the money
we will see that the risk profile is
very similar
so for the 525 550 short call spread
the max profit is around 10.50 the max
loss is around 14.50
if i buy the 550 525 put spread
the max profit is 10.85 the max loss is
14.15.
now keep in mind that these prices are
changing as
the stock price is changing and it's a
pretty volatile day so
they're not going to be exactly the same
but if we roughly compare the risk to
reward
of shorting a call spread or buying a
put spread
using the same strike prices they will
essentially have the exact same risk
profile
so if we do that once more go back to
well let's look at a different example
if i short
the 500 475 put spread
this has max profit of 925 maximum loss
potential
of 15.75 but to get the same exact
position
i could look at buying the 475 500 call
spread
so let's see what the risk reward
profile for that is
so buy the 475 short the 500
max profit 965 max loss 1535
so they are very similar in nature and
this gets into the realm of
option synthetics which is how you can
construct
the same option positions in different
ways
but the reason that i'm bringing this up
is because i think it is awkward
to purchase an in the money vertical
spread much like i think it is awkward
too
short and in the money vertical spread
so if you want to place a high
probability trade
then i think it is better to and out of
the money vertical spread or if you want
a very
favorable risk to reward trade based on
a very
strong directional outlook then i think
it is better to buy and at the money or
out of the money vertical spread
as compared to buying a deep in the
money vertical spread
because if you buy an in the money
vertical spread
the profit potential will be less than
the risk
and if you buy an out of the money
vertical spread the profit potential
will be more than the risk so when you
have a very strong directional outlook
for a stock
i think it is more beneficial to give
yourself better risk reward
as compared to putting on a higher
probability trade
where if you're right about that strong
directional outlook
you'll make a little bit of money but if
you're wrong you'll lose
more than you could have made so it's
really a matter of preference and i
would encourage you to go on the trading
platform
and play around with different trade
structures and see what the risk and the
reward profile is
for those vertical spreads but in my
opinion if you have a very
strong directional outlook for a stock
then
i think it is better to buy a call
spreader put spread
namely one that is at the money meaning
you buy and at the money strike
and short and out of the money option or
you even purchase an
out of the money vertical spread because
those will give you the most favorable
risk to reward profiles alright so let's
close out this video by talking about
what happens at expiration to a vertical
spread and
is there early assignment risk when you
are trading vertical spreads so
understanding what happens to a vertical
spread is fairly simple
because at expiration any option that is
in the money that is held through
expiration
will automatically be exercised so for
vertical spreads
what this means is that if your vertical
spread is
out of the money meaning the options
have no intrinsic value
then add expiration those options will
expire worthless
and they will not convert into any stock
positions so those worthless options
will simply disappear
from your trading account and that'll be
it now if your vertical spread is fully
in the money which means both of the
options in the vertical spread
have intrinsic value and you hold that
position through expiration
then both of the options will actually
automatically be exercised
and convert into the corresponding stock
positions
associated with whether that's a short
or long call
or a short or long put so for example
if i have a 125 130 call spread that
i've purchased
and the stock price is at 135 at
expiration and i hold the spread through
expiration
the long 125 call that i own will
automatically get exercised
and i will buy 100 shares of stock at
125 dollars per share
but the 130 call that i am short will
also
automatically be exercised and since i'm
short that option
that means i will be assigned on the
short 130 call
and that means i will sell 100 shares of
stock
at 135 or 130 dollars per share
so basically what will happen if the 125
130 call expires
in the money i'll buy 100 shares at 125
and i will simultaneously sell those
shares at 1 30
and basically i will make 500 on that
difference because i will buy 100 shares
at 125
and i will sell those 100 shares at 130
pocketing the 500 gain on that
transaction
but if i paid two hundred and fifty
dollars for the spread when i entered
the trade
my net profit would be two hundred and
fifty dollars in that particular example
so if the vertical spread is fully in
the money and you allow it to expire
in the money then the exercise and
assignments
will offset and you will not end up with
any stock position
after expiration regardless of that
though you will pay
exercise and assignment fees based on
whatever your brokerage firm charges
and i actually would not recommend
holding a vertical spread through
expiration
just because you have the option to
close it before expiration
in which case you don't have to worry
about what's going to happen when those
options
expire in the money so in general i
think it is a good idea to always close
option positions
before expiration unless they are
extremely deep out of the money
and they're just going to expire
worthless anyways but lastly
what happens if a vertical spread is
only partially in the money at
expiration
let's say i buy the 100 put and i short
the 90 put
and the stock price is at 93 at
expiration
well the 100 put is in the money and the
90 put
is out of the money so this means if i
hold the position through expiration
the 100 put that i own will
automatically be exercised
and i will therefore short 100 shares of
stock
at the put strike price of 100 so i will
end up with a stock position
which would be shorting 100 shares of
stock
at the put strike price of 100 but the
90 put that i shorted
initially will expire out of the money
because it
doesn't have any intrinsic value if the
stock price is at 93
and because of that the 90 put will
expire worthless
but the 100 put that i owned will be
exercised automatically
and i will effectively short 100 shares
of stock
at that put strike price of 100 so if
your
vertical spread is only partially in the
money meaning the stock price is in
between the strike prices
when it expires if you hold that spread
through expiration you will
end up with a stock position and again
as i mentioned earlier
i think it is a good idea to close
vertical spreads before expiration
especially if they are partially in the
money because in that scenario
you will end up with a stock position
and
in most cases you probably won't want to
be taking the stock position
because if you're trading options
especially if you're trading in a
smaller account
that stock position is going to
represent a value that is significantly
larger
than whatever option position you have
and for that reason
if your spread is partially in the money
at expiration
i would really recommend closing that
spread
before it expires so that you don't end
up with a stock
position and especially if you don't
want the stock position
and lastly is there assignment risk
when trading vertical spreads and the
answer is yes
since there is a short option component
of all of the four vertical spread
strategies
when you're trading a vertical spread if
the vertical spread is in the money
meaning that the short option is in the
money
then theoretically you do have risk of
being assigned on that short option
because the only time you'll be assigned
on a short option
is if it is in the money but at the same
time there really
is not a high risk of early assignment
because
if you're short and in the money option
and it has lots of extrinsic value in
its price
it is very unlikely to be exercised by
the person that owns it
because whoever exercises the option
with extrinsic value
will effectively burn the extrinsic
value in that option and give it up
unnecessarily so for that reason a
rational trader would never exercise an
option that has lots of
extrinsic value and if they did exercise
an option that had lots of extrinsic
value they would essentially be
forfeiting
all of that extrinsic value and if
you're short that option
that means you will actually be
benefiting by the amount of that
extrinsic value in the case of early
assignment
there is a early assignment risk when
you're trading vertical spreads
primarily if the short option is deep in
the money
with very little extrinsic value but in
the case of buying a call spread or
buying a put spread
if the spread is so deep in the money
that the short option
has very little extrinsic value that
also means that the long option that you
own
also has very little extrinsic value and
for that reason
that means the spread is probably
trading for very close to its maximum
potential value
and you should be closing it anyways if
you own a call spread or you own a put
spread
there should never be a scenario where
you're worried about early assignment
because in the case where you could be
assigned early on that short option
because it is in the money with very
little extrinsic value
that means your put spreader call spread
is already trading near the maximum
profit potential
and therefore you should close that
position now on the other hand if you
are short a call spread or you are short
a put spread
and it is fully in the money then your
short option is actually going to have
less extrinsic value
than the long option and in this
scenario you are much more likely to be
assigned before expiration since your
short spread is actually fully in the
money
and that means you have a losing
position it's a little harder to tell
you
to close that spread because it is
illogical to close a vertical spread
that is close to the maximum loss
potential because you have very little
left to lose
but you have everything left to gain so
it's a little trickier when you're
short a call spread or put spread and it
is deep in the money with early
assignment risk
because in that scenario the spread is
probably trading at a point that leaves
you with
near the maximum loss potential and in
general
if you have already lost almost all you
can lose on a trade
it doesn't make sense to close it but in
this case it's tricky because
if you continue holding that position
there's a chance that you'll get
assigned early on that short in the
money option
but keep in mind that that does not hand
you a huge loss because you still have
the long option that is also in the
money
and you could just close the stock
position and close the long option
to unwind that position or you could
exercise the in the money option that
you own which would effectively
close out that stock position that you
were assigned into
but again i would not recommend
exercising an option
if it has lots of extrinsic value so
there's a lot to know there and a lot to
think about
but in general you should not worry
about early assignment risk with
vertical spreads
because like i said if you're buying if
you're buying the spreads
so you're buying a call spread or buying
a put spread by the time you get to any
situation where you have early
assignment risk your trade is going to
have the max profit and it should be
closed
but if you are shorting call spreads or
shorting put spreads
it's a little trickier because by the
time you get to an early assignment risk
scenario then your position is going to
have close to the maximum loss potential
and that means that you've already lost
everything you can lose on the trade
and in those situations it's illogical
to close the trade
but if you want to avoid the early
assignment risk the only option you have
is to close that vertical spread alright
so that's going to do it for
today's ultimate guide to the vertical
spread option strategies i really hope
you enjoyed this video
and learned a ton from it i covered not
only the basics but i covered some more
advanced material
that i would encourage you to study
namely the vertical spread profitability
versus time to expiration the vertical
spread profitability versus
changes in implied volatility and both
of those things relate to extrinsic
value so we not only covered the basics
today but we covered some more
heavy hitting material but if you can
master your understanding of everything
that i've described in this video
as i said earlier you will make a
gigantic leap forward in your
options trading expertise if you enjoyed
this video i would
really appreciate if you gave it a like
for me down below
and if you left me a comment letting me
know what you liked about this video
or what you've learned and if you have
anything else to add that other people
could benefit from
please leave that down in the comment
section below my name is chris from
project option and i will see you all in
the next video
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you