Module 2 Session 10

VIDEO: 6:30 MINUTES

This session continues to define various trade strategies:

• Vertical Credit Spreads
  • Bull Put Spread
  • Bear Call Spread

Bull Put Spread (vertical credit)

• Type: Credit
  
• We BUY the further option (pay the premiums)
  
• We SELL the closer option (collect the premiums)
  
• Implied Volatility: Med/High – 60% or more
  
• Direction Bias: Bullish (3/1 reward to risk trades only)
  
• Volatility Bias: Conservative Short Volatility (CSV)
  
• Risk/Reward Profile:
  Max Risk: Limited (distance between long and short units less net credit received)
  Max Profit: Limited to Net Credit (credit received from the short unit minus the debit paid for the long)
  
• Greek Values:
  
  • Position Delta: +25 minimum
    
  • Position Vega: Negative
    
  • Position Theta: Positive
    
• Position construction:
  ANCHOR: Sell 1 OTM Put expiring in less than 60 days while in a demand area
  OFFSET: Buy 1 further OTM Put with same expiration date
  
• Best Case Market Condition: Capture a directional move in a market experiencing slightly elevated volatility levels. Allows profit when the underlying moves up, sideways or even down to some degree.
  Because risk is unlimited you MUST pay close attention to the Risk/Reward ratio
  

Bear Call Spread (vertical credit)

• Type: Credit
  
• We BUY the further option (pay the premiums)
  
• We SELL the closer option (collect the premiums)
  
• Implied Volatility: Med/High – 60% or more
  
• Direction Bias: Bearish (3/1 reward to risk trades only)
  
• Volatility Bias: Conservative Short Volatility (CSV)
  
• Risk/Reward Profile:
  Max Risk: Limited (distance between long and short units less net credit received)
  Max Profit: Limited to Net Credit (credit received from the short unit minus the debit paid for the long)
  
• Greek Values:
  
  • Position Delta: -25 minimum
    
  • Position Vega: Negative
    
  • Position Theta: Positive
    
• Position construction:
  ANCHOR: Sell 1 OTM Call expiring in less than 60 days while in a supply area
  OFFSET: Buy 1 further OTM Call with same expiration date
  
• Best Case Market Condition: Capture a directional move in a market experiencing slightly elevated volatility levels. Allows profit when the underlying moves down, sideways or even up to some degree.
  Because risk is unlimited you MUST pay close attention to the Risk/Reward ratio