Last update: July 2021
≈ Shut up and take my money! ≈
Imagine you can have the best of two worlds on the same trade. How happy would you be?
Delta and Theta, usually portrayed as natural enemies, can be the next #BFF of your portfolio. By joining forces together, they will let you gain some exposure to price direction AND collect some premium while on the ride.
Sounds music to your ears, doesn’t it?
The key lies in the net amount of Extrinsic Value (ExV) you collect between the long and the short option contract. The amount of ExV you collect by selling an option *must be higher* than the amount of ExV you are paying for on the long option. This way, the Theta will be positive even if the spread nets a debit.
Option sellers naturally got time on their side because they are selling time and uncertainty, whereas buyers have time as their enemy, UNLESS, they too sell more time and uncertainty than they pay for.
Take a stock that is trading at $117.35 as an example. The setup is the bearish retracement and you are expecting it to quickly drop to $116-ish. You then buy the 59 DTE ITM 118 puts and sell the OTM 116 puts, creating a 2-dollar wide Bear Put Spread:
- Max loss: –$63
- Max profit: +$137
- Potential ROI: +217%
- Daily Theta: +0.019
- Delta: –9.59
Still don’t believe your eyes? Check the Chart of the Day. Sweet.
On tonight’s Coaches Show, your hosts Gino Poore and Grant Larsen will walk you through the Bear Put Strategy from the new Tackle Trading Playbook project. You don’t want to miss it.
Chart of the Day
Debit spread with positive Theta
Video of the day
What Are Debit Spreads
A Debit Spread is an options strategy that requires simultaneously buying & selling options contracts on the same underlying security, same expiration date but different strike prices, resulting in a net debit.
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.