In the Money Debit Spreads - Good Idea?

[@JakeBroe]

Sorry guys, my tongue gets tied sometimes talking about this stuff. I said "out of the money" a couple times when I meant "in the money". This whole video was about in the money contracts. Leave comments if you need clarification! Also check out my entire playlist on trading options here: kzbin.info/aero/PLscTZuOqKWIxSZzy4ObKWDznEsCot_1HU

[@hugorodriguez6835]

Understandable bro. Glad you were able to verify my understanding with this pinned comment. Always a pleasure watching your work!

[@richardvonmeyer]

You can create a debit spread using deep itm calls. It will have a higher probability of profit. To reduce the max possible risk, you can sell otm credit spreads (provided the distance in between it's legs isn't hugher than that of the debit spread's legs). You can even totally recover that max possible risk at some point after which, any otm credit spread with a similar width will have 0 risk.

[@greywaver8398]

In your first example bull call spread, the potential profit of .45 ($45 per contract) was about a 9.9% return for the 44 days. ($45/$455 debit). This is an annualized return of around 80%+. I can live with 80%/yr. This assumes price remains above the higher strike price. Higher the delta, the better the "odds" of doing so. Thks!

[@lmichaelhuang3]

I've noticed for some symbols where there is less volume out of the money, I get better price spreads on itm debit spreads. That's why I put in orders for that. This was a useful sanity check.

[@donvin999]

Great work Jake! I opened an ITM bear call spread on AMD today. 20% of max profit by the end of day today.

[@JakeBroe]

Solid vincent! I like it!

[@donvin999]

@@JakeBroe I closed it at 30% this AM would have hit 50% in another hour. 🤷‍♂️

[@nicks8459]

Great video Jake. It seemed to me that in your example it would be better to sell the put spread (would receive $100 and risk $400) versus buying the call spread (would pay 415 to make $500) making the assumption that FB stayed above $340 until 17 September.

[@JakeBroe]

Yes and no! The probabilities according to delta were slightly different which is why there was a small price difference. Cheer Nick!

[@TheMadMariner]

Good job on this, explaining the basic logic of these spreads. But for me personally, I'm looking for more information on how to decide which strategy is appropriate for a given stock at a given time.

[@bikramnayak9549]

LOVE YOUR VIDEOS , SO CLEAR AND CRISP.

[@Highlyskeptical]

My favorite tools learned here so far are the wheel, dead hand and credit spreads, the debit game seems too risky. Thanks for explaining these financial tools, I'm overcoming my Dunning Kruger issues!

[@JakeBroe]

Nice! My video on the Iron Condor is coming later this week!

[@passivedividendsoptions]

I think I like OTM Put Credit Spreads more than ITM Debit Spreads because I can’t be exercised on my short positions in the PCS until that short strike is breached & the stock price for my short position is now in the money. However, with the call side I do feel like I am able to exit & get more of my profit sonnet compared to the PCS.

[@JohnSmith-ms8nj]

assignment concerns will be a big factor in the decision whether you pick a put or call spread (inversely)

[@kanegs1]

I like credit spreads, been bitten by them in the past, you have to watch the market. I'm not a big fan of the 'negative' risk ratio though with credit spreads (risk $4 to make $1). I'd prefer other strategies out there that provide 'positive' risk ratio (risk $1 to make $3 or $4)...debit spreads, butterflies, calendars, so on. Great video though, love it!

[@JakeBroe]

I actually agree kanegs. I did a couple credit spreads last fall and got burned hard on one. Felt like the risk to reward ratio doesn't make it worth it and I probably would rather try my luck on the other side with debit spreads. Cheers!

[@kanegs1]

​@@JakeBroe Check out Larry Gaines with PowerCycle Trading, if so inclined...he's really good with positive risk ratio trades (debit spreads, butterflies, etc.).

[@alfeim12345]

Also, ITM vertical spread, unlike the OTM counterpart, is theta positive.

[@zadokmotorfreight2423]

Wow, very well done video! One question..... if you buy an ITM spread, wouldn't the short option always be at risk of assignment since you want the ITM spread to stay ITM?

[@AskDyor]

Great video! Definitely one that’ll I’ll have to watch again!

[@JakeBroe]

Thanks PremiumOption! Glad you enjoyed it!

[@ohh_mendozuhh]

If i opened an ITM call debit spread, would I need to close out early? Or can I let it expire worthless?

[@vinceb3]

Awesome video. Thank you for sharing your knowledge!

[@marksoberay2318]

Keep in mind this also profits from vol expansion

[@hakeemjones8268]

Good stuff. Never thought about this

[@JakeBroe]

Thanks Hakeem! Cheers!

[@cfb7000]

Great job on breaking this down....

[@JFTmy]

If the short call strike gets assigned early then thats great, you get to realise max profit earlier.

[@fongluo677]

Great video Jake👍

[@JakeBroe]

Thanks Fong! Cheers!

[@JacksonWelch]

Awesome video jake!

[@JakeBroe]

Thanks for watching Jackson! Cheers!

[@Atropin4ik]

Jake, the thing that you need to cover is the fact that call debit spread have risk of early assignment due short deep ITM side. Which will not be a problem cause you would have ITM long call as well. Because of that some brokers might charge higher margin requirement for the same ITM call debit vs OTM put credit spread.

[@JakeBroe]

Ah... that makes sense. I wasn't aware of a higher margin requirement due to the risk of early assignment. That is very useful to know. Thanks!

[@Atropin4ik]

@@JakeBroe it would be truly helpful if you would check this statement on your account and make a comment. I cant swear I didn't possibly have anything else affecting my margin while testing. I am also using charles schwab.

[@JFTmy]

If the short call gets assigned early then you get max profit early

[@knm185]

If I open an in-the-money put debit spread, can the sold put be exercised before expiration? What happens if this is the case? I would have to sell 100 shares of this stock?

[@pjstieglmayr]

Great video. Very clear explanation.

[@matthewcrawley8847]

Loving the vertical spread videos. Vertical spreads and iron fly’s are my go to’s. Any update on the Dead Hand?

[@JakeBroe]

Hey Matthew! It's been a very boring, flat month for the S&P 500. With no volatility... the Dead Hand hasn't been doing much. I'm not losing 20% on my contracts to add another level.

[@tylerborg8000]

Any reason why you shouldn't buy the call just ITM and then sell the call way out of the money? The P/L graph for this looks amazing

[@mrwsilva1]

Perfect timing Jake, I literally just did an ITM call spread today with TXN, trying to get more familiar with these. Still wasn’t too clear with them, so this really helped. Additionally Jake, I remember a few months back you recommended some books in one of your videos. I don’t remember what video that was, but do you mind replying with those finance books you recommended?

[@JakeBroe]

Hey Mr. Silva! I haven't found a good book on options, but general finance and investing I recommend Rich Dad Poor Dad by Robert Kiyosaki, Unshakeable by Tony Robbins, The Little Book of Common Sense Investing by Jack Bogle, and How to Make Friends and Influence People by Dale Carnegie.

[@mrwsilva1]

@@JakeBroe That’s awesome Jake, thank you for that!

[@markbaier8218]

Get Rich with Options by Lee Lowell really helped me.

[@wmbrice]

Great content, Jake. Have you ever experimented with backtesting to “optimize” deltas for spreads?

[@JakeBroe]

Nah, I don't backtest. I just do it live. Probably not the best idea, but I've managed to do well so far.

[@donvanote]

Very good stuff. Couple questions- all else equal, if ex-div day is before expiry, would not the itm call debit spread be better than the equivalent put credit spread, since you WANT them to call it early, then you get the full spread pay back early? That is not an option for an otm put credit spread. Also, the percentages work out a bit better for the call debit spread vs. the equivalent put credit spread, as you are obligated a bit less $$ up front?

[@misaelarredondo7933]

3:45 “who the heck is buying in the money call contracts” me. I only buy in the money call contracts. Unless you do a leap I would never buy out of the money call contracts and honestly especially with a leap i would still go super deep in the money. What do you think Jake? Do most people buy OOTM? I’ve never understood why or is there an advantage besides being cheaper? What do you buy with leaps Jake?

[@JakeBroe]

Buying in the money contracts (anywhere or anytime) cost more, but your chance of success is greater and your risk of loss is less. I personally prefer out of the money contracts, but I know for large traders looking to take advantage of spread difference, they'll buy in the money contracts.

[@bsmba1347]

a little tongue tied lol, but a good video, jake. i like how you highlighted the buy and sell on the option change. visuals are key when explaining anything complex.

[@robertmarsico493]

Jake What page are you demonstrating on? that layout for Options is nice.

[@JakeBroe]

Hey Robert! I just use Charles Schwab's website!

[@robertmarsico493]

@@JakeBroe Jake, thanks for all your videos they help us all.

[@Red-Eagle]

So is a debit spread one or two day trades?

[@torontoinoneday5605]

What can happen if the width of the spread is increased?

[@black_guardd1194]

is this considered margins?

[@albertodeulofeu5277]

What about theta? What if I don’t wanna be assigned and just wanna sell the spread for a profit?

[@qytexui7893]

Isn’t the idea to get assigned and exercise the other contract to achieve the max profit? Example TSLA SELL CALL 185 BUY CALL 180 net debit of $275 max profit of $225. Ideally I want to be assigned and exercise the 180 call correct?

[@torontoinoneday5605]

Hi Jake, Can we do Buying a Call option ITM/ATM and sell a Call option OTM? Abrahm

[@sivakumaranbazhagan1672]

What happens when these debit spreads expire in the money at expiration date. We will receive the credit right?

[@ubgradde8917]

Thoughts on VGT vs other popular ETFs?

[@JakeBroe]

It's just more heavily weighted on the tech giants compared to the S&P. Probably performs better when the market is going up, and performs worse when the market is going down. Cheers Christian!

[@albertodeulofeu5277]

So…. The stock can trade sideways and you still make money if you’re trading an ITM debit spreads?

[@JFTmy]

Yes

[@wingzero8986]

good video jake, keep it up. but where is the dead hands!

[@JakeBroe]

It's been a boring, flat month for the S&P 500... not a lot happening with my Dead Hand account

[@Grimzy-]

Video starts at 3:50

[@JakeBroe]

Cheers Rolando!

[@romeoking3191]

on that FB debit ITM spread why you didn't buy to open the 335 strike and sell to open the 330 strike. I though debit spreads are buying the strike closest to the stock price and selling another further from the stock current price. You lost me there. this is discussed 6:52 in the video.

[@leejmuam1]

Hi Jake. Question. So delta measures the probability of ITM by expiration date and the rate of option price change per $1 in the u/l stock? I'm guess I trying to take in too information and I got confused 🤔.

[@JakeBroe]

Yes, delta has two purposes. It measures the rate of change in the premium of the contract for every $1 change in the share price of the company and according to the black-schols formula, it roughly measures the probability of a contract expiring in the money.

[@craigchambers4183]

Trying to think how I can watch this video in reverse. :-) Looking for ITM Credit spreads next. Did one today in MRO buying the Aug 13 Put Strike of 12 and selling the Aug 13 Put Strike of 12.5 for a credit of 37 and risk of 12. Maybe I am all mixed up, but I have your graphics on my desktop and would maybe call this an ITM Bull Put Credit Spread.

[@craigchambers4183]

In the meantime, however, I am by far sticking to the Wheel cause I do understand it well now.

[@JakeBroe]

Uhhhh, an ITM credit spread would mean you would lose max value past the premium received unless the share price moves. An ITM credit spread has the same risks and probabilities as OTM debit spreads. You NEED share price movement.

[@craigchambers4183]

​@@JakeBroe My price is in profit between 12.12 and 12.50, maxing out there at +$37 and stays max over that. My loss begins at 12.11 and maxes out the loss below there at -$12. That is what the broker shows on the "curve," and before I traded it showed the same figures. So yes, I only make money if it moves north, which it has so far. I have 50% profit showing already (though if it falls that goes away). I will close it Friday at the latest as you warn to do.

[@wess8131]

Jake, I highly value your channel. Do you think that you can make video about what to do in this time when market is all time high and goes higher almost every session. How to ply such a market? No one wants to get in on top. Any option strategy addressing this kind of market? I’m selling cash-secured puts on SPY. At least I get better purchase price (if exercise) then buying on the top.

[@JakeBroe]

Hey Wes! I have a video coming next week about bond interest yields... which I think explains a lot by the market ONLY goes up now. I think the S&P 500 is going to hit 5,000 by the end of the year before this madness ends. Selling cash-secured puts on SPY is a solid strategy. If you are comfortable with the risk, you can instead sell multiple put credit spreads on SPY. This has risk because you can lose money, but you'd be making more for the same price of a contract for a full cash secured put.

[@marksoberay2318]

Very nice thx

[@willgordon5737]

Options are such a brain twister. It takes months to get used to them

[@venician2face]

Yeah, I think you missed the point of trading in the money spreads.

[@thomaswinter739]

Good idea, but honestly the way you explained it, if I didn't already know how to do this, I wouldn't understand your explanation.

[@JakeBroe]

Yeah… not easy to explain. This video maybe could have been better.

[@thomaswinter739]

@@JakeBroe you did better than I could do, some topics are just more difficult than others. Keep it up man

[@ronaldlipp1293]

You are get too complicated for me to follow

[@JakeBroe]

This is pretty complicated, advanced stuff Ronald! Probably WAY MORE info that options traders need to know. I'm just making the video for those who might want it. Cheers!