After one of our recent PowerOptions webinars an attendee asked:
“What happens if you have a vertical call or put credit spread that expires In the money?”
If both options of a credit spread (Bear Call Credit or Bull Put Credit) are in the money at expiration you will receive the full loss on the spread. You will be obligated to deliver shares of stock or buy stock at the short option strike price, and your broker would use the long option to cover the obligation.
The most important thing to remember in any spread position is that Read more »
Several months ago I purchased Gilead Sciences (GILD) in my married put Fusion account. This is an investor war story about this position and some lessons I’ve learned as a result of doing a regular quarterly review of my holdings.
But before I get into the lessons learned, I need to share some background information that led up to the purchase in the first place.
GILD was ready to move.
During the December 2015 to January 2016 time period the entire Biotechnology sector was under pressure and most stocks in the sector declined. But February 2016 brought some stability and consolidation. During the February to March period, volatility declined, Bollinger Bands narrowed, and MACD turned positive. I thought, It was clearly time to consider Read more »
The key is likely to first develop a trading plan for your spread positions in conjunction with the tools on PowerOptions. A trading plan may consist of:
- What are my goals for monthly or annual income?
- What exposure am I willing to risk in the market?
- Should I look for lower probability trades with a higher return, or higher probability trades with a lower return and higher risk vs. reward ratio?
- What is most important in your trade selection:
- The underlying security?
- Minimum option premium?
- % Return or % Annualized Return?
- % Probability?
- Difference in strike prices (risk on the trade)
- Time frame for an open position (weeklies vs. standard expiration).
- Detailed Exit Strategy, including what is an acceptable loss vs. management techniques in various situations.
This may sound like a lot to cover but once you map out a trading plan the pieces will fit together regarding:
- What criteria are most important to use in the PowerOptions search tools.
- What steps will you use to research and analyze the position more effectively.
- What alerts to set in the Profit and Loss Portfolio tool as you track your spread positions.
- What to look for when adjusting, rolling or closing a spread position.
The PowerOptions’ staff is available every trading day during trading hours by email and toll-free phone lines to help you get your trading plan together and get you setup with the PowerOptions tools to make your investing plan easy to implement.