In today’s video we’ll learn how to sell vertical credit spreads in the ThinkorSwim platform. We’ll also dive into the basics of vertical spreads, things to look for before placing the trade, when to close them, and we’ll go through analyzing the trade to visualize how the trade can play out over time.
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Timestamps
0:00 Intro
0:19 Basics of Vertical Spreads
3:01 Things to Look For
8:12 How to Sell a Vertical Spread
15:56 Analyze Spread Using Risk/Profile
A veritcal spread is made up of a short and long put/call at different strikes in the same expiration. A short vertical spread allows you to collect premium up front and take advantage of time and volatility decay. The spread allows you define your maximum profit and maximum from the beginning of the trade.
Many options sellers will prefer to sell premium in high IV environments. Looking for not only implied volatility to be of a certain level, but also looking towards IV rank to confirm the stock volatility is sitting towards its upper end range.
A short vertical put spread is a bullish, defined risk strategy made up of a long and short put at different strikes. Selling the option closer to the money while simultaneously buying a further out of the money put as a hedge against the stock going down in value.
A short vertical call spread is a bearish, defined risk strategy made up of a long and short call at different strikes. Selling the call closer to the money while simultaneously buying a further out of the money call as a hedge against the stock going up in value.
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