Vertical Bull and Bear Spreads

[@kyungpaek523]

Most excellent explanation that i have ever heard. Specially i am able to understand how to calculate BEP. Thank you so much !! Feb28,2023

[@MikeyBadabingBadaboom]

I spent the last year and a half watching videos about these spreads and this video was the golden one.

[@ag.4937]

after looking at 10 other's expl. video of option strategy >>> this one was absolutely to the point

[@isaacnyambiya1823]

I have liked and subscribed the moment I realized my presentation has been simplified

[@stacy7104]

I loved how you didn't do anything fancy in explaining vertical call and vertical put spreads and I understood it perfectly. I am a teacher and the old-fashioned way with just showing paper and notes.. Nothing fancy....Is the Best way!🤗👍

[@AmolMY]

watching this video 10 years after it was made..and still it is as useful as on the day it was made..some stuff has been immortalised

[@edwarddaoud2293]

Best detailed explanation of the subject

[@GilCuriously]

Today is the day I officially understood spreads. Bless you sir! Now I have to watch all your other videos.

[@Joseal69]

Best spreads explanation!!! Thank you Sir

[@jenniferjames2538]

Researched several other people's explanations, and I must say that you blew everyone else away. I was still confused until I watched your video. Thanks so much!!

[@shaunglendinning]

Appreciate your clear and simple explanation of how the Verticals work.

[@F10-s9k]

Superb explanation! Really appreciate your effort to print the materials and teaching them in a layman's terms with an example.

[@AakashKumar-mm1bq]

i was trying to understand vertical bull and bear spread... i watched few more videos before i came across yours. This one is the best. Thank you so much :)

[@djnaydee]

Your an amazing instructor my friend. Simplified and easy to understand explanation, trumps all other videos on this subject. Thank you

[@kevinbracker]

Thanks...I appreciate the feedback.

[@sanjeevmishra1467]

I thought this to be not much profitable but now I believe that spreads are more profitable.Thank you so much.Your excel presentation was really great.

[@urmihossain]

the best video so far.

[@victorlalicon9287]

Simple presentation but very informative. Thanks Kevin

[@CaptainHowdy915]

i was racking my brain trying to understand this strategy while studying for the series 7. great video, explained everything in a way i could understand it. kudos!

[@chicagorealtynow]

Finally a great video that explains a concept that many people have a hard time of explaining. This makes it clear and very understandable!

[@manjunathreddyn]

you are a good teacher Kevin, thanks for the video

[@lg3053]

Great video. You really explain it COMPLETELY and in simple to understand terms unlike a lot of other people. Thanks.

[@bullbea3029]

Kevin,You have explained the stuff which i was trying to understand from last one month...you are really a great instructor. Thanks a lot for creating such a valuable contents.

[@miket2798]

Finally an illustration and a demonstration that I understand Jesus they make things complicated and you made it so easy

[@kevinbracker]

Thanks...glad the video was helpful

[@joedaddy3185]

I really appreciate the spreadsheets you present as a complete map of the scenario. I'm going to search for more of your material! Excellent instruction and presentation Sir!

[@AJ-ds9xq]

out of all the videos I've been watching, finally understood how vertical option works!! Thank You!!!

[@DABIGRAGU1]

What an excellent explanation of spreads. Best on KZbin. Thank you.

[@perethakanjorn6317]

AMAZING!! I've LOOKED everywhere for help, and I am so chuffed with the video as it has really helped me to understand the work, so thank you!

[@TheAjay2211]

Pere Thakanjorn Hi How r u? I m jay from Canada Hey can we be friends You look gorgeous 😉😄

[@jonathanyoung67]

Excellent explanation, Very well explained and easy to follow, I have a test tomorrow and this video is doing the rounds in Maynooth University, Ireland. Keep up the good work!

[@conradmoore7095]

You make it so easy, thanks man

[@salinasjose8]

Good Video. Your diagram helped clear things up, and your voice speed was just right in taking in the information.

[@hankobrat]

Great explanation! Question- when constructing the vertical spread, how do you decide if you want to use calls or puts?

[@kevinbracker]

Unfortunately, I haven't ever executed any of these trades (I can tell you how to do it, but don't actually do it myself) because my view on options is that they are a zero-sum game (negative sum when you take in trading costs). I have (many years ago) bought options as more of a side bet (a very small portion of the portfolio), but don't trade them now. That said, you'd look at the profit potential on each trade and see if one offered a slightly higher profit.

[@Miclariez]

Explanations nicely walked through. Easy to understand and very comprehensive!

[@arwood111]

Wonderfully simple explanation! Thank you!

[@drorhen1109]

Beautifully explained. Thx

[@RajivJaini]

Great video. This is perfect for dummies like me. Please make more on options. Thanks!

[@kevinbracker]

Yes, with any of these spreads, you can close them prior to expiration. However, the payoff pattern changes as it then must take into account both the intrinsic value AND speculative premium. However, you won't know what the spec. premium will be as it will depend on several factors (such as volatility) that could change between the time you put on the spread and when you decide to close it.

[@himmelfilm4916]

Hi Kevin, thank you so much for that video. Just a quick question: what is the decision process on which spread I am picking? When do I take the decision to e.g. make a bull call spread instead of a bull put spread? And why would I decide that? Thank you!

[@kevinbracker]

To be perfectly honest, I'm familiar with the concepts but don't trade these types of positions. Between transactions costs and taxes, I question how profitable they are over time unless you have a real edge in knowing what the stock is going to do in a reasonably short time frame.

[@himmelfilm4916]

@@kevinbracker Thank you Kevin!

[@Morgan7477]

Best explanation I've seen. Do more on other options such as Iron butterfly. Dpo you have an excel template. I downloaded the PDF but couldn't find the spreadsheet. I can make one but........lol I've subscribed to your link so will watch for more. I know this one is 3 yrs old,

[@nabihazaidi2524]

wonderful explanation!! thankyou so much for not complicating it with the payoff graph

[@kingsleylaurent562]

Do i have to own the stock to do this method?

[@MOAMA82]

Timeless lessons, thank you.

[@CoachSet]

Ridiculously good stuff.

[@joejia14]

Thanks for your comments Antonio

[@MURUR1025]

Excellent presentation. Easiest to take in.

[@ambongyagloriane7152]

Well explained, thank you Sir

[@kevinbracker]

Thank you!

[@abdulazizkattan]

Best explanation

[@PicknTime]

Great video, very clear and easy to understand. Thanks so much!

[@blessedwinner7636]

amazing presentation for beginners like me, easy to understand. GOOD JOB

[@ksafan838]

Best video I have seen on this topic. God bless to you.

[@AmishWebmaster]

I'm missing something here. Wouldn't it make more sense to just stick with the Netflix $240 call? I don't see the advantage of the $250 call.

[@giridharkumar]

You need to invest higher amount ($1925, max loss is $1925) instead of $550. By selling $250 call, you invest less ($550, so your max loss is $550). So by bull call spread, you for go the unlimited profit potential in order to reduce the max loss.

[@AmishWebmaster]

+Giridhar Kumar He is reducing his losses, but also his profit. 10:54 There is no "unlimited profit potential." The limit is $450.

[@giridharkumar]

Yes. you are right. That is the point. This is good for those 1. Who don't want to risk huge premiums. You are reducing the premium/risk significantly by limiting the profit potential. The probability of reaching the limited profit is very low unless you are very precise in predicting the market. 2. Who are unable to enter into option call/put trades which has huge premiums

[@PedalToTheMetal61888]

...I/m GLAD...someone else out there see's...'''what I/m TALKING about ...THK/s for ''POSTING''...I/m back in the Classroom with ...www.VectorVest.com... !!...

[@gautam12ish]

Most succinct explanation Kevin. One question. Can you tell what proportion of money a trader needs to have in their account in order to implement a Vertical Bull or any such strategy. TIA

[@kevinbracker]

There is not really a set amount one needs in their account as it will vary depending on risk tolerance, size of options trading to overall wealth/income, cost of specific options, etc. For example, someone with a small account could quickly lose their entire balance dealing with Google options as the stocks volatility and high price make the options expensive. On the other hand, someone doing the same trade with Pepsi is going to find it much less costly. A practical issue that is important though is the cost of trading. If you are doing a small position, you must evaluate the cost (bid-ask spreads and commission). Also, since a small position will not be exercising the options, but closing out prior to expiration by reversing the trades, the commission and bid-ask will hit twice, making trading costs a higher proportion of potential profit/loss.

[@xianshi8896]

thanks you crystal clear

[@jesusalba1989]

Does theta affect the vertical spread. And it will better to trade with the puts instead of calls to use theta as an advantage.

[@toddsnaza9295]

so to understand if you are doing a VERTICAL BULL SPREAD it does not matter weather you use calls or puts and the directions are the same for both? You BUY the LOWER strike and WRITE the higher strike? And just the opposite for VERTICAL BEAR SPREAD

[@mjolnir9855]

Check out TastyTrade for a further explanation of credit spreads vs. debit spreads. Not to take anything away from this video, but Tastytrade definitely continues on this and shows how to select the desired strikes, and why, for these vertical spreads.

[@johnnocanuck]

For the put spreads, why are you dealing in both Deere and Netflix at the same time?

[@kevinbracker]

@rw53522 The template is now available in Google Docs (link in the video information)

[@jaggi921]

So is spread consider to be writing a naked calls/puts. I mean suppose we did the spread so writing ITM call/puts at expiration means you need to buy the stock similar to what we do for writing naked call/puts or just closing this spread is going to take care about all our losses/profit before the expiration

[@Parkerhiggs]

can you let your option contracts expire or will you have to exit your position?

[@Vengess1]

Very good job with the tutorial sir.

[@chentskooner2502]

Quick question: If i sell 50 call strike, and buy a 40 call strike, what happens at expiry if the stock price at 45?

[@kevinbracker]

+Chintu baba The 40 strike call would be in the money and would have a value of $5 per option ($500 per contract). The 50 strike call would not be in the money and the buyer would not exercise it, allowing it to expire worthless. Therefore, the value of your position at expiration would be $500. The profit would depend on the initial cost of establishing the position.

[@chentskooner2502]

+Kevin Bracker So, in order for me to know the break-even point i would have to know the initial cost of the each Call right? With current information (short 50 Call strike, long 40 call strike, and stock price of 45 at expiration) all we can tell is what you said above. short 50 call would be worth whatever it was sold for, am i right?

[@chentskooner2502]

+Chintu baba OK, after doing some studying, i understand this would be a debit call spread.

[@Justin-pu5pb]

So, Vertical Bull Spread will only be CALLS? And, Vertical Bear Spread will only be PUTS? I want to see if I am on the right track.

[@kevinbracker]

No, you can create a vertical bull with puts. Let's say that TSLA is trading for $418 and the 425 Put is $72 while the 410 Put is $81. If I want to create a vertical bull spread, I want to make money if TSLA goes up and will take a loss if TSLA goes down, but want the max gain/loss to both be capped. If I buy the 425 Put for $72 and write the $410 for $81, I start out $9 ahead (my CF0). If the stock goes above $425, both will expire worthless, so I keep the $9. If the stock goes below $410 (at expiration), the $410 will lose a $1, but that will be offset by the $425 that I own (setting my maximum loss at $6 ==> $9 - $15). My breakeven will be at $416 (I will make just enough on the 425 Put to offset the $9 I started with).

[@sirbrianbour]

Hi Kevin, I am finding these very good. I see that you say that there is a excel sheet for this? but I am not sure how I find it. can you help

[@stg5ive]

Do you ride this strategy all the way through to expiration? What if you're realizing profit early and want to close, do you close the lower strike that you bought and let the higher strike that you sold expire worthless or do you close that one as well?

[@imronlevi]

perfect !!!

[@joejia14]

Great video Kevin, I have a question. If Bull Call spread and Bull Put Spread both profits when the underlying goes above sell option, how to decide to do one or the other? Is it based on which spread provided higher yield? Are there other variable(s) before you decided weather you'll execute a "Bull Call Spread" or "Bull Put Spread"? Pls advice. Thks

[@alonsodenova4690]

Joe Jia Hello, a Bull call spread is a debit spread which needs the stock to go up while the bull put spread is a more defensive play which has a limited profit as it is a credit spread. In other words, the bull call has a higher reward as it will have as a total profit the difference between the two strikes minus the debit for the spread but a lower posibility of hapenning; the bull put has the credit as the maximun reward but a much higher posibility of being a winner.

[@lorna4u20]

Thanks! This was really helpful. Same goes for the other videos.

[@jayamin7855]

what is difference between buy and write call . do u need large investment for write a call or just -550 that u explained. thank u

[@kevinbracker]

When you buy a call, you are getting the right, but not the obligation to buy the underlying stock so it is a fixed potential loss. When you write the call, you are obligated to take on the other side, so there is much greater risk. Typically, the ability to write calls or puts requires a larger investment portfolio and some experience with options (although that is largely self-reported). However, in a position like this that is less likely as your downside is limited.

[@ujku6984]

in all these videos is mentioned that I buy an option and i sell option. Where did I get the option i am about to sell ? do I have to own the underlying security, meaning that must have bought before also the stocks ?

[@kevinbracker]

+ujku You can think of options as a "side-bet" between investors on the stock price (this is a simplification). Whenever someone buys an option, someone else had to write or sell an option. In order to write an option, you need to have the approval of the broker that you are using. The requirements are also typically stricter for writing naked vs. writing spreads due to the risk exposure. When you are writing an option, you are effectively creating a new contract.

[@ujku6984]

+Kevin Bracker thanks for the answer. So it depends from the broker if I can implement certain strategies with options. Good Video!

[@carlavv5302]

Does anybody know If the First example Bull spread is a Debit Spread and the Second example Bear Spread is a Credit Spread? Thank you!!

[@BFArch0n]

PUH-LEEZE explain the expiration date better.....no videos mention it, do you need to keep until expiration? Why would you or wouldn't you? ALSO, is there ever a scenario where you have to cover the funds, instead of just the cost of the spread? (all of a sudden you owe someone $20k you don't have)

[@timhammer2119]

NO I keep my spreads and use a GTC depending on the width of the spread, say a $2 spread I usually set my GTC at 65% of the possible profit. The beauty of a vertical spread your loss is known before you pull the TRIGGER. My trades are set up between 2 and $ 5, I will not spend more then 1/2 of the spread 2= $ 1.00 I would pay if you want to make more when your nest egg grows add more contracts. A $5 spread the most I would spend is $2.50 x 100 = the most I could lose is $250.00 + commission, if you make say $105.00 and you want to take your money and run close the account and take your money after 2 days or 10 it doesn't matter I never run my spread out unless it crashes and there's no value left therefore let it go and save the money to close it out at the end your brokerage company will do it for 0. Hope this helps.

[@odessafrankson1478]

@@timhammer2119 ,

[@Naturesbeautyfloraandfauna]

Very excited to learn more

[@audiogram303]

Great video, very clear and concise, thank you!

[@jkatvcr]

Good one , please do more of such in a real time trade thanks

[@ryanhunter2231]

Do you have to trade the call option you own in order to realize the gain or do you just let it expire?

[@kevinbracker]

The payoffs here are based on intrinsic value at expiration (ignoring any costs). In practice, transactions costs and taxes are going to lower the profitability of these trades.

[@chalemi]

Please explain to a total newbie. I understand buying call options give the person the right but not the obligation, to buy the underlying stock. But what happens with a sell option? I mean, isn't there someone on the other end that may expect to get shares of stock if I sell a put option? Confusing.

[@kevinbracker]

If I buy a call option, I get the right, but not the obligation to buy the underlying stock. However, someone had to write (sell me) that option. So, if I get the right, but not the obligation to buy the stock, they have the obligation to sell it to me (for the strike price) if I choose to exercise my option. If I buy a put option, I get the right, but not the obligation to sell the underlying stock for the strike price. Is I sell (write) that put option, I have the obligation to buy the stock (for the strike price) if the person chooses to exercise the option. So, if I write a $50 strike put and the stock is at $53.50 on expiration, it will expire worthless and I will make money. If the stock is at $30 at expiration, it will get exercised and I will have to pay $50 for the $30 stock (basically losing $20 less what I got for selling the option initially).

[@chalemi]

OK so wether it's a call option or put option, if I'm SELLING either one-I must actually own the underlying stock?

[@kevinbracker]

Actually, no. If you own the underlying stock and sell a call, you have a covered call. If you are short the stock and sell a put, you have a covered put. However, you can also write "naked" calls and "naked" puts. Naked implies you do not currently own the offsetting position (in other words, you don't have the shares you are agreeing to deliver in the case of a covered call). This means that if the option is exercised, you need to go out and buy the shares to be delivered. In most cases though, the person that sells the call or put will instead just buy it back in the open market prior to expiration.

[@ThomasCollado]

Great tutorial, so easy to follow. thanks.

[@EEZYEEEE]

Really great video, thank you. You didn’t get into buying or selling the option premium. Is that not recommended as part of the vertical spread strategy? Also, does the option have to expire or can we do an early exercise if the underlying stock price is in our profit zone?

[@hdcontents6688]

I’m sorry but I’m still confused a little bit

[@GolfTroop]

This video is VERY helpful so thank you a lot doing this. I do have a rookie question if someone could help me about exiting. I am doing/learning bull put and bear call credit spreads. I understand that when the price is above the higher strike on a bull put and under the lower strike on a bear call you are getting the max gain and you let the options expire and do nothing more. BUT what are the other exit options? Or what do you suggest? Let's say the price tanks in a bull put spread and you are going to take a max loss. Can you simply let both options expire and take that loss OR do you have to sell/buy to cover the positions? Lastly, if the price is in the middle of the strikes do you have to do anything OR do you just let the options expire? My fear is that I am missing something on the exit side of these bull put and bear call spreads OR bear put spreads (credit spreads). Thanks a ton and your videos are VERY helpful for a newbie like me.

[@kevinbracker]

Let's use a buy a 40 strike put and write a 45 strike put example. Let's say that the 40 strike is trading for $0.70 and the 45 strike is trading for $3.05. Your initial cash flow is $2.35 (or $235 per contract). Your maximum profit is going to occur when the stock price is above $45 at expiration (you keep all of the $235). Your maximum loss is going to be anywhere at $40 or below (you will lose $265). This is AT EXPIRATION. In the case of the stock price hitting $45 or higher, YOU will let the 40 strike option expire (doing nothing), but the 45 strike option is not up to you. Since you wrote it, the buyer decides whether to exercise or not (at $45 or higher they won't). At a price below $45 they will (since they can sell you the stock for $45 and it is worth less than that). For the option you write, you don't get to let it expire as that decision is not yours. You can always close your position early by selling the one you bought and buying back the one you sold, but that introduces speculative premium into the mix which changes the values (at expiration, we only have intrinsic value)

[@GolfTroop]

Makes sense and thanks a ton for this reply! If the price tanks to $30 would I need to do anything at all or simply let it expire and take the $265 loss and move onto the next trade?

[@kevinbracker]

You would need to exercise your 40 strike put that you bought and fulfill the obligation on the 45 strike that you wrote. Although from a practical perspective, you would likely just do reversing trades (buy the one you wrote and sell the one you bought) shortly before expiration.

[@GolfTroop]

Thanks Kevin....VERY helpful.

[@GolfTroop]

Last question Kevin :). It seems like the easiest choice is to simply reverse the trades before expiration by creating a closing order (when the trade goes your way AND when it does not go your way). This way you are not stuck long or short 100 shares (per contract) of the underlying asset. Overall, it just seems like the easiest way for a rookie like me to get started, does that seem correct to you?

[@bmwman5]

Good presentation, well done, am subscribing. 👍

[@spc.butler2988]

Wait a minute.... If you paid 19.25 for the $240 strike price your break even is $259.25 not $ 245.50 ... Am I not right ?? Strike + principle paid = break even...

[@kevinbracker]

You are missing part of the trade -- the reason it is a spread is that you are not just buying the $240 strike, but also writing a $250 strike to offset the cost. This also caps your upside.

[@cabdoctor]

Best explanation I've seen

[@whatwouldgdonowgvkpierce6879]

When you say Buy and write,do you mean buy and sell everybody else says SELL not write?

[@kevinbracker]

Yes. Technically, since you don't own the option you are effectively writing it as I think of an option contract as an agreement between the owner of the contract (who has the right, but not the obligation to buy/sell) and the writer of the contract (who has the obligation to take the other side if the option is exercised). Selling (assuming you did not already own the contract) would be the same.

[@Mr-yn4gy]

So let say I try your 2nd way of doing it which is buy a 250 call strike, and sale a 240 call strike and at expiry the price is 246.

[@parisgraphics]

Thank you! Very clear explanation!

[@logeshlv336]

❤

[@frankruping9680]

Hi Kevin, this is an old video, but a good one - easy to follow. Thanks. I have subscribed your channel now and will take a look to the other videos also in the hope that they are also helpful. BTW: There is a little mistake on first sheet for the Vertical Bull Spread. You have written "Netflix" instead of "Deere" there.

[@maxdaytrader5463]

damn duude, can u make a video of a 3 to 1 vertical spread strategy? and also talk about stopping out before expiration if trade goes against you and you wish to exit

[@nickbuakaew]

I though when you sell call, you make money when stock price go down. For example your sell call $250....if the stock go to $220 you get to keep the premium ($1373) i mean the outcome is the same at -$550

[@andrewlillys3486]

Same

[@YoutubeMichael538]

To place a vertical bull spread requires four transactions. These transactions have a cost in the form of commissions paid to the broker, and should be mentioned in your video when calculating potential profits. Other than that great video.

[@frankruping9680]

If you stay in this trades till Expiration Day - and these calculations based on that - you have to pay only commissions on entry. If you have a good broker, you must pay around $1/contract. $2 of commission for this examples with results of between $200 and $700 haven't any significant impact on the profit / loss. If you sell double spreads ("Iron Condor") because they are offer more safety on both sides of underlying and use far OTM Options with low premiums of up to $30 per contract on entry only because of an lower priced underlying, and you go out prior the Expiration Day, you will have a very different picture, also on a cheap broker: $4 on entry, $4 on exit = $8. Let`s say you have a Net Profit of $15 (exit on 50% win of the original premium of $30), you have to pay >50% commissions on your income. $15 - $8 = $7 Cash in your pocket - and from this you must pay tax also... You can sell more contracts for more income, but the problem is the same. Good for your broker, not for you.

[@cftang7441]

fantastic explanation. thx

[@bluestarindustrialarts7712]

Vertical spreads. Max profit is always with of strikes subtracted from your premium (debit spread) And with of strikes added to the credit you received (credit spread). limited risk and limited profit. Holding them into expiration is generally not a good idea. For example, your short leg can expire ITM. The counter party brokerage begins exercising to assign to protect the option from expiring worthless. Your broker in turn begins exercising your long leg to cover your position. Fine. In after hours trading the stock moves enough to push the short leg OTM, and the counter party messages his broker and tells broker not to exercise as buying 100 shares at the new after hours price is cheaper. But YOUR BROKER HAS NO IDEA THIS IS HAPPENING. So come Friday evening, you are the proud owner of 100 shares of a stock that could be way too large for your account including your margin. (Think TSLA, GOOG, and other expensive stocks) Now you get to sit all weekend with your entire account + margin if needed holding a dropping stock. Dont think that 'limited risk' strategies like vertical spreads are 100% safe. If either leg is significantly ITM near expiration and you would prefer to not own the underlying, CLOSE THE POSITION before expiration. This video explains this in gory detail: kzbin.info/www/bejne/q3rQmISNj9SZoKM

[@JoseGarcia-kr3xx]

just say the seller instead of the writer!anyway that was kool!enjoyed it very much man!

[@michaelsaenz380]

Writer is a more proper term

[@cuzmariosaidso]

Yolo on the call option

[@jacobdavid]

Thank you for explaining it so well.

[@yvonnemukase8019]

Best explanation hands down. TKS

[@pameliapax]

Soooooo easy to understand. Thanks!

[@mattdathew2794]

very well explained, thanks boy.

[@brithopper]

Fantastic teacher ..thank you so much

[@vitvita1236]

Why aren't people doing this instead of trading stocks?