Today’s video goes step-by-step through the bull call spread strategy.
Aka: Long Call Vertical Debit Spread
Bias: +2, +3, Low Implied Volatility
Structure: Buy around ATM call option & sell a higher strike call option in the same month. Use 2 to 3-months. (Shorter-term is more aggressive)
A: Typical spread width is $5. You can widen/shrink the spread as needed.
B. Don’t usually do a spread width < $3.
C. The wider the spread the more potential profit/loss.
D. The wider the spread, the higher the net delta.- more aggressive
Objective: Stock to rise above the higher the strike price (100/110 bull call. Target is $110+)
Guidelines around trade structure, which make the trade MORE AGGRESSIVE:
A) Cost < 40% of the spread width
i. $10- spread: Pay $4 or less
ii. $5-spread: Pay $2 or less
iii. 150% ROI
B) Net Delta: 25+
i. Buy +50 delta call, sell -25 delta call
ii. Buy 40 delta call, sell 15 delta call
IF I build a bull call spread and pay 50% of spread width, or only have a net delta of 15. It’s not wrong, it’s just more conservative. Use your best judgement.
Trigger: Same as other bull trades. Depends on pattern. Above prior day’s higher or above resistance.
1) Risk the entire trade cost.
2) Exit on a break of support.
1) Exit at the higher strike price.
2) Exit if you capture 60% to 80+% of profit.
Read more Options Theory [FREE Content]
Every Thursday our resident options addict, Tyler Craig, will be at the helm to help you demystify derivatives and better understand what truly makes them tick. Options for beginners? Come this way, please. Enlightenment awaits.
Financial freedom is a journey
Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.
Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.
All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.