The Best Vertical Spread Option Strategy 2022 - Proven Trading Strategies

[@rockwelltradingservices]

To get the transcript of today's video, head to: www.rockwelltrading.com/articles/coffee-with-markus/best-vertical-spread-option-strategy-2/

[@joshuafolsomart2057]

thank god someone actually knows how to easily put together an explanation on one page with an easy example. good job

[@rockwelltradingservices]

Awesome! Thank you for watching! :)

[@lastdonuts]

Jeez, idk how many spead videos I've watched now bc it just wasn't "sticking", the one page chart with the same stock made it so clear

[@rockwelltradingservices]

Thank you for the feedback. I try to make things as clear as possible in my videos 👍

[@grantdoubinin5747]

@@rockwelltradingservices wwaaàaAaaaaaaaaaAaawaaÀaaaWaaaaaaaaaaaAaaaàaaaaaaaaaaAaaaAawwaaAaaaaaaAaàaaaaàaaaaAaaaaaaaaaaaaaaaaaaaaaaaaaAaaaaaaaaaaaaAaaaaaaaaaaaaaaaaAaaaaaaàaaaaaaaaAaAaaaaAAaAAAAaaaaaWAaaaaAwaaAAÀAAAAaaAWwaAaaaaaaaAAaAAaWaaAwaAwàAaaAawawaaaAAAwaaaAAwwaAaaaAwaaAaAaAaaaaAaAAAaaAAAASAAaaaaAAAAaaAaaAasaAaAaAaaaaaawwaaaaaaaaaawAaaAaaawAAWaAAAWAAWWAAAAWAWaaAwAAaaaAawawwwwaaAAwWwwWaAaAAAaWaAAWAaaaweAaa3AAWAaqaaAaawÀAEeàßaßasaaaààwásßasaàsßAssaSsÀSeSeAssaAsSAwWWASAwaSAwsSWAàasSwassÈ4qeawASesaàawe3qqaqqq12212qq1qaqq1q1aaaWWAWwASsWasswaàAWaswwaaWaassssàSàEAeAÀAWAWSWWAAAAAWWwAwAsàWww

[@joycealanis]

Agreed. For me, the other thing that made so clear to me is when he showed the market opinion, if you think the market is going up, or down, then which spread you should use based on your opinion of the market. I never really found a video that explained so simple and so well.

[@PALUMTAR]

Markus, You have done an amazing work here. the best youtube video when it comes to explaining this type of materials. Thanks.

[@rockwelltradingservices]

Thank you! I appreciate your feedback 😊.

[@jovencioestera8486]

Amazing for the breadth of information here, I had been looking for and so well done...Cant thank you enough for doing this..and looking forward to your other videos

[@rockwelltradingservices]

Thank you for watching! ;)

[@BuffaloSoldiersSon_GOBIRDS]

Excellent teaching. Broke things down perfectly. Many thanks.

[@rockwelltradingservices]

Thank you!

[@yogash69]

The BEST explanation of the difference between the verticals!

[@rockwelltradingservices]

Thank you! :)

[@nathanielwilliams6154]

Beautifully done!! Now, can you dwell on how to get in and out of these trades in regards to IV and spread ratios to capture the most returns please 🙏

[@Koel0202]

I think so far this is the best explanation for the Vertical Spread! Thank you, Markus!

[@rockwelltradingservices]

Awesome! Thank you.

[@rickraymor3728]

Awesome explanation!!

[@rockwelltradingservices]

I hope this helps! ;) Please subscribe if you haven't yet.

[@jet-jet2154]

Thank you. I've watched several tutorials on vertical spreads, and this is the most informative.

[@rockwelltradingservices]

Awesome! Thank you for watching!

[@TimothyPounds]

Finally I can understand!! Thank you so much for breaking it down like this.

[@rockwelltradingservices]

I'm glad you found the video helpful. I try to make these videos as clear, and to the point as possible 👍

[@realfastboat]

Mr. Heitkoetter, Thank you very much for this exact explanation of Spreads. My mind had a difficult time grasping this until I saw the video.

[@rockwelltradingservices]

Hi A Cavern! I am glad that this helps. ;)

[@anarchistlaw012]

Perfect sense. Best and most constructive explanation on option spreads that I've seen so far. Great job buddy!👍

[@rockwelltradingservices]

Thank you for watching!

[@betinhoz1]

Great explanation. I´m gonna save this video in my favorites. It is very useful.

[@rockwelltradingservices]

Thank you for watching! ;)

[@BenjaminSkapur-on5yj]

Thanks for explaining everything in one page. Very strait forward.

[@rockwelltradingservices]

Awesome! :) Thank you for watching!

[@technofobe6376]

A really nice overview on a one page Excel sheet. I have copied this spreadsheet and set it on my wall as a constant reminder of what I should be trading. Many thanks

[@rockwelltradingservices]

You are welcome! I am glad that this helps.

[@Alfy47]

A very clear and graphic explanation you give here , by this way it is easier to understand.

[@rockwelltradingservices]

I am glad that you find this easy to understand. :)

[@khoodavid4505]

So far so good...very smart to put the various type of spreads in a table. Thank you so much.

[@rockwelltradingservices]

You are welcome! I am glad that this helps. :)

[@rickraymor3728]

All on one page!

[@rockwelltradingservices]

Thank you for watching! ;)

[@dustypirate6775]

Excellent detailed explanation and well spoken!!

[@rockwelltradingservices]

Thank you for watching!

[@paulojustinianookubo]

While you can say a debit spread is better volatility time and speed will kill your spread if you get wrong any of the 3 key components. With credit spreads you do not have to let them get out of control as you can adjust if you are wrong. With a credit spread time is on your side as you get pay regardless of what the stock does as long as your strike is not touch. If your spread is wrong in this 3 keys you will lose big time. 1 if the stock does not move 2 volatility as options tend to be expensive 3 speed if the stock does not move much.

[@Hakkolinen]

Great video. Just read some books on the subject, so this makes much sense.

[@Noone-w2h3q]

great stuff. The spreadsheet makes it so easy to understand. before this video I watched someone else's of over one hour long and was really confused. Thank you.

[@rockwelltradingservices]

Hi 一对一教练, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍

[@chrisrote7641]

@@rockwelltradingservices like the rest great video and new subscriber here. Can I get that spreadsheet?I’ll use it as a worksheet to utilize before pulling the trigger on a buy.

[@davefield8100]

Excellent presentation. Next questions are: how far in the future should the spreads be exercised: Are Weeklys better than monthly? When is best time to exit? Thank you.

[@zettkusanagi6322]

Thank you for the information and breakdown of all these options. I have been 'naked' trading (lol) for a while, and its incredible to me I do not know that many people in my community who are taking this approach to trading.

[@rockwelltradingservices]

You are welcome, Zett. ;)

[@alfsilva]

Excellent video and the breakdown all on the same spreadsheet is perfect. What I believe was missing is the expiration dates.

[@rockwelltradingservices]

Thank you for pointing that out! ;)

[@tomd.7929]

@Markus Heitkoetter You have omitted telling people how they can avoid MAXIMUM loss on credit spreads. That does not seem fair to me. Perhaps you explain how to adjust trades to avoid losses in another video? I trade credit spreads all the time, and by using a stop loss 3x the credit received, I rarely have a net loss on the trade, especially when receiving 2 premiums by legging into an Iron Condor,(Having a call credit spread otm, and a put credit spread otm, working at the same time, with no extra BP used.) When the short option is stopped out, my long option is still working and can, and has greatly reduced the loss. My experience has been that I get to keep all the premium, or keep a very small percentage of the premium, or have a loss at a less percentage than the loss on debit spreads that are not adjusted when the trade turns against you. Just my 2 cents worth to defend the credit spread strategy.

[@mdidaho]

Good point TomD! My sons name is Tom D! :-)

[@frankboet1]

Not only do you have the best hair on the internet, your explanations are topnotch. Excellent videos. THANK YOU!

[@rockwelltradingservices]

😊 You are welcome! I am glad that this helps and thank you for watching!

[@tygar1000]

Yes, great job breaking down each component of the trade! 💯💪🏽

[@rockwelltradingservices]

Thank you for watching! ;)

[@MrTchia04]

This is a nice breakdown of all four spreads. I used to have to find pieces of information from various places. Thank you Markus

[@rockwelltradingservices]

You are welcome! I am glad that this helps! :)

[@pacoenriquez3183]

Excellent video, I'd been looking for something like this for a while, thank you!

[@rockwelltradingservices]

I am glad that you like this! ;)

[@amywagner9585]

really like how you capture all this on one table - Thx

[@rockwelltradingservices]

Awesome! Thank you for watching! :)

[@DaBooster]

Possibly the most helpful video on the subject. Thanks for the visual layout

[@rockwelltradingservices]

😊 You are welcome! I am glad that this helps!

[@imapple82]

Well explained. Perhaps you can add on the effect on the closing option before and after expiration.

[@rockwelltradingservices]

Awesome! Thank you for watching! :)

[@foodrater17]

Wow 😲.All my doubts are clarified .Thank you so much

[@rockwelltradingservices]

Thank you for watching! See you in the next episode! ;)

[@PaulMaduka-m5w]

This was very well explained, thank you so much! What of risk of assignment, when does this happen with debit spreads?

[@xcaliber_gaming]

Glad I found your channel. Nice work. I will recommend you to friends as well.

[@rockwelltradingservices]

Awesome! Thank you!

[@philipmills8732]

I made a handwritten copy of this matrix chart. I refer to it all the time. And guess what....it's working. This chart w examples reminds me every time I put on a trade what to expect. Thanks !

[@rockwelltradingservices]

Hi Philip Mills, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍

[@himanshuvaishnav8510]

Markus, this is fantastic info. No one explains different spreads in such detail and gives such info and insight especially wrt 90% win rate and other hypes which I have heard too.

[@rockwelltradingservices]

Awesome! Thank you for watching! :)

[@kazitaufiqiqbal1194]

What an UNBELIEVABLY helpful video, thank you!

[@rockwelltradingservices]

Awesome! Thank you for watching! :)

[@Armpit54]

One of the best lessons I have seen.... great job! Debit spreads are my bell ringer. :)

[@badass6656]

Good video. I thought the pacing is about right for what my opinion is worth. It might have been useful to see probability of success added to the table. Surely this a game of probability of success vs the amount that is gained or lost in the trade. There is not really any channel I have come accross that seems to focus on finding a cheap trade i.e relatively high probability of success compared to the (highest gain to lowest lost) ratio. The suggestion is having a view on the trade increases its value in one direction or another. How many of us trully know in which direction an asset is likely to move?

[@OakSantosh]

Great explanation . Clear and simple .

[@TravisPernell]

Very good example of how these spreads work. Now I might be able to realize some serious profits.

[@rockwelltradingservices]

Thank you! :) To ensure that you are going to pick the right stocks you should equip yourself with the right tools. We have the PowerX Optimizer that does the guesswork for you. Here is a special link in which you can avail of a $1000 discount www.rockwelltrading.com/products/10-44-powerx-optimizer/

[@SamM-nb1gs]

This is the best explanation video on KZbin. Thank you sir

[@rockwelltradingservices]

You are welcome! I am glad that this helps! :)

[@coachmarcuslomas8349]

YES!!! it makes sense. I am just now seeing this video. And it all really "clicks" for me! So much so, I am not only "liking" the video... I am subscribing to your channel!!! Thank You for all this!!! I really want to learn and have spent a lot of time trying to learn, but couldn't seem to find anything getting past the basics/mechanics.

[@tomcha75]

Helps a lot to see them all on one page with examples. But regards to the risk vs reward, doesn't the strike price difference in each scenario be the reason for the poor ratio of credit spreads? They are only 10 apart where as the debit spreads are set at 50 and 30 apart. Or is this a better simulation of real life example? Sorry if that's a poor question; I'm just starting to explore these concepts and all kind of flying over my head.

[@stephengrant6316]

Really enjoyed your comprehensive chart. It helps to observe on one screen the types and outcomes of spreads.

[@rockwelltradingservices]

Awesome! Thank you for watching! :)

[@261Pro]

I've been trying to lock 🔐 these strategies in for a while.. Your video is even speed and with writing examples it is easier to retain the information... I am a bit trigger shy because of the horror stories of people getting assigned and loosing very big money 💰

[@rockwelltradingservices]

Hi 261Pro, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍

[@lesliemaness999]

Getting the general idea. You do a good job explaining. Thank you!

[@rockwelltradingservices]

You are welcome! I am glad that this helps! :)

[@bluestarindustrialarts7712]

You explain things very well. This all reverts back to market direction. If you are right in the directional move of the U/L, you will do ok. My problem? I put a spread on a stock that I have researched, the option period does not have earnings or dividends, 5 out of 5 analyticals rate the stock as 'strong buy, good momentum, etc' Put on the spread,.....and the stock drops 11 pts in 3 days. IDK if this is because markets are at record highs now, and are so news sensitive that anything can cause havoc. Honestly, Im not kidding I have better results playing craps in a casino. Did an Iron condor on an ETF that has been trading in a $3 channel for 3 MONTHS! Had my strikes OTM, option analyzer showed 89% probability of (modest) max profit. Market opens the next day and the damn ETF price starts shooting up like a rocket....by 1pm, Im at risk of being assigned my short call. Had to bail at a loss. I think options, the stock market in general has become nothing more than a casino sadly. The only wise thing to do in times like these is wait for a substantial drop, then buy shares shortly after correction reverses.

[@Pictureinpicture77]

Put spread debit the premium you gonna receive when the price is below your long leg at the expiration so you gonna get 100% of your money , you forget say it

[@JoseSanchez-tp1zv]

Wao such an awsome explanation. Auto subscribed. Thanks for the content.

[@rockwelltradingservices]

Awesome! Than you!

[@PhanOT11]

Great video! Thanks. So what is your favorite spread?

[@truepatriot-ku9lz]

You are an excellent teacher

[@rockwelltradingservices]

Glad you think so!

[@ximeng5073]

Making best sense, thank you very much Markus.

[@rockwelltradingservices]

You are welcome!

[@johnnymiles8694]

So far you have explained it better than anybody else. Kudos sir

[@rockwelltradingservices]

Hi Johnny Miles, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍

[@snand05]

You explain very well at a decent pace - thnx

[@rockwelltradingservices]

Thank you. ;) I am glad that this helps.

[@Shaniloka369]

I finally got it. I had to watchit and stopping many times to take note to get it right. Credit Spread is horrible. Thank you Sir.

[@rockwelltradingservices]

You are welcome. I am glad that this helps.

[@mankind8512]

why not? credit spread is amazing.

[@jituvb]

Best tutorials comparing all options spreads. Thanks

[@rockwelltradingservices]

😊 You are welcome! I am glad that this helps!

[@krimlinturhks4651]

Still relevant and thank you for this info. It's 2024 now.

[@rockwelltradingservices]

I am glad that this still makes sense! ;)

[@thekidlizard3755]

Great video really helps. Watched you on Benzinga this morning and looking forward to browsing all your other videos!

[@rockwelltradingservices]

Hi Darrin, thanks! Have you seen my latest video on the "PowerX Strategy": kzbin.info/www/bejne/bHTCkpZpa86Lg9k I did it yesterday, and I think you're going to like it. 👍

[@frederickprice9104]

yes, this is making sense too me and you are going at a good pace.

[@rockwelltradingservices]

Awesome! Thank you for watching! :)

[@philsummers579]

Yep! Still good teaching and relevant 3 years down the track!

[@rockwelltradingservices]

Awesome! Thank you for watching!

[@earthlastdaybiblechannel]

best explanation i have ever seen i always say only christians explain well i dont know if this brother is christian but its very clear and to the point thank you

[@samallen4213]

Some of the world's best mathematicians have been Hindu.

[@gregf.9547]

Wow! You explain this so well! Love your other videos too! They have helped me wrap my head around vertical spreads much better!

[@rockwelltradingservices]

Awesome! Thank you for watching! :)

[@C00ltronix]

The spreadsheet is very useful. You should put that on your link.

[@rockwelltradingservices]

I am glad that you find it useful! ;)

[@paulinejohnson-lewis7645]

The best breakdown I have seen. Thank you

[@rockwelltradingservices]

😊 You are welcome! I am glad that this helps!

[@pkamikaze888naur6]

Yes making very good sense, I understand now. Thanks

[@rockwelltradingservices]

Awesome! I am glad that this makes sense to you. How are you trading so far?

[@shashitaylor9411]

Very food explanation. Thanks... Which trading are your using for this demo.

[@thenanook]

Excellent video, liked and subscribed

[@rockwelltradingservices]

Thank you! :)

[@tonigachau]

Best explanation & breakdown

[@rockwelltradingservices]

Thank you so much newton! ;)

[@samallen4213]

An excellent development, but it stops short. I would like to see on the last line the sum of the risk and reward times their probabilities as the mathematical expectation of the strategy.

[@sunyun4425]

How do you calculate the probability for a spread? Does your broker offer that detail? Think Or Swim seems like it can calculate probability of ITM OTM under the Analysis tab but I'm new to that platform. Etrade doesn't seem to be easy to navigate options information and calculating probability. Webull also seems to lack ease of understanding the probabilities. They do have a probably chart but it's not easy to understand what it's telling me

[@rahavjitthamanyu6779]

Hi Markus as usual Semma video. We call them bull call spread bear call spread, here in India.

[@rockwelltradingservices]

Thanks for sharing that! ;)

[@joesloan2207]

Thank you for this video, it's obviously a rewatch many times. What platform are you using to trade options?

[@rockwelltradingservices]

Hi Joe! I am using the PowerX Optimizer. Would you like to learn more about it?

[@VinceLysaght]

Yes making sense Markus. Good pace for me anyway.

[@rockwelltradingservices]

Cool! Do you use the PowerX Optimizer software?

[@fengzhichao629]

What do you think using the volatility to decide long or short? In that theory, this stock volatility should be less than 50. Is this true? Thank you Markus for discussing this interesting topic, I like the way you think.

[@kelleyrn]

Good stuff. Making sense. I saved this an keep going back to it.

[@rockwelltradingservices]

That is awesome! ;) I am glad that this helps.

[@_justjoshin]

After watching so many videos. Now it makes sense. Thank you so much!

[@rockwelltradingservices]

Hi Jay Dumas, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍

[@amitchopra22]

yes it is making sense.. very clear explanation.

[@rockwelltradingservices]

Awesome! Thank you for watching! :)

[@rossrichardson7184]

Great video Markus! I've been struggling with this question myself. What's the best vertical spread options strategy? I believe they are all equivalent when they have the same probability of profit (POP). For example, if I'm bullish on a stock and I trade a call debit spread with 50% POP or a put credit spread with a 50% POP (both bullish positions) won't they have equal risk-to-reward ratios (or very close to equal)? In these examples, they all have different probabilities of profit. The call debit spread has a low risk-to-reward ratio (910 to 4090) because it has a much lower probability of profit (36% POP) while the put credit spread has a high risk-to-reward ratio (965 to 35) because it has a much higher probability of profit (94% POP). Thank you for making this video, any feedback would be greatly appreciated!

[@rockwelltradingservices]

Thank you for your thoughtful question! You’re correct that vertical spreads can have different risk-to-reward ratios based on their probabilities of profit (POP). While both a call debit spread and a put credit spread can be bullish, their characteristics differ significantly. 1. Risk-to-Reward Ratios: A call debit spread often has a lower risk-to-reward ratio because it typically requires a larger investment for a smaller potential gain, especially if the POP is low. In contrast, a put credit spread can provide a more favorable risk-to-reward ratio with a higher POP, meaning it has a greater chance of expiring profitably. 2. Probability of Profit: The POP is crucial in assessing the likelihood of success. A higher POP generally means a more reliable outcome, but it may come with a lower maximum profit. Conversely, a lower POP can lead to higher potential gains but with increased risk. 3. Market Conditions: Ultimately, the best strategy may depend on market conditions and your risk tolerance. Consider the specific stock's volatility, your market outlook, and how much risk you’re willing to take. In summary, while both strategies can be equivalent in terms of being bullish, their risk profiles and potential outcomes vary significantly. Always weigh the POP alongside the risk-to-reward ratios to make informed decisions. If you have more questions, feel free to ask!

[@leamiller6011]

Yes makes sense and the chart style is helpful

[@rockwelltradingservices]

Awesome! :) Thank you for your feedback.

[@pinklizardtricali]

Best explanation Markus.

[@rockwelltradingservices]

Thank you for watching!

[@DIYLifeSkills]

Best explanation video of this category!!!

[@rockwelltradingservices]

Thank you for watching! ;)

[@edliu8205]

best illustrations i have ever seen。

[@rockwelltradingservices]

Awesome! Thank you for watching!

[@marceloperrone1971]

Awesome, one of the best option video that I saw

[@rockwelltradingservices]

Hi Marcelo Perrone, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍

[@arthurclemente8821]

Markus, this was a very helpful video...one question, though..You mentioned the PoP, or probability of profit in passing, which I think is a very important factor to consider. For instance, both credit spreads had PoP of over 70%, whereas the debit spreads had probability less than 50%. For this reason, the debit spreads look a lot less attractive to me....Any comments?

[@rockwelltradingservices]

When we talk about the Probability of Profit (PoP), it's like looking at how likely you are to make money with a certain strategy. If the PoP is over 70%, it means there's a good chance of making a profit. In your case, the credit spreads with a PoP over 70% are more attractive because they have a higher chance of success. On the other hand, the debit spreads with a PoP less than 50% are less appealing because they have a lower chance of making money. It's important to consider how likely you are to make a profit when choosing which strategy to use.

[@ESM777]

Hi Markus, I think at timecode 3:32, you made a mistake with the buy and sell. You said buy 230 and sell 240. I think what you meant was sell 230 and buy 240 for Call Credit Spread. Correct me if I am wrong.

[@bentline]

Those were my thoughts - did you every get an answer to this question?

[@qdceps]

The maximun risk on vertical credit spreads is diference between strike *100 minus premium received

[@csjoshi1330]

Agreed

[@dipu827]

Nicely explained! Thanks a lot Markus.

[@rockwelltradingservices]

😊 You are welcome! I am glad that this helps!

[@keegankozinski5826]

You may have answered this in another video, if so point me to that video. And if anyone else knows how to do this, then ... Is there a way to place an option order for a if the option price reaches this price, then buy? I thought I saw it could be done when exiting an existing order, but can't figure out if possible to do when I want to enter a position. Thanks.

[@davemc138]

Thank you for explaining. Could you pl. explain to select strike price at open int. or vol. or more better way . thank you.

[@rockwelltradingservices]

Hey Dave, what would you like to know about the strike price specifically? How it is selected at the open?

[@davemc138]

@@rockwelltradingservices Thank you. my question was , to select a strike price, which parameters to see, like, open interest, volume ? or others?

[@blackshirej]

Thank you for such a well explained video! I've been watching video after video trying to understand the concept and everything leaves me excited to learn more but confused on how to do it. This has helped tremendously. Subscribed!

[@rockwelltradingservices]

😊 You are welcome! I am glad that this helps! Thank you for subscribing.

[@euctoday2505]

Yes, making sense! Best explanation I’ve seen yet.

[@rockwelltradingservices]

Awesome! Thank you for watching! :)

[@ManjitSandhu]

In the last two columns should the max risk not be difference between strikes *100 MINUS the premium received. You have not mentioned Minus Prem received and I was wondering if you missed it or my understanding is flawed (most probably it is the latter)

[@AsadKhan-bu4rm]

At 5:30 when explaining Call Credit Spread you say you’re buying but in the list you have selling. To get a credit don’t you have to sell ?

[@jhansimahasivaraju3701]

Great explanation as usual. I am doing pretty good with 200k account . Just trying to be perfection.

[@rockwelltradingservices]

Thank you! :)

[@tonyvausa5712]

Excellent presentation! Thanks

[@rockwelltradingservices]

Hi Tony VA USA, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍

[@chandrabiswas9231]

Very clear to understanding..✈️