Vertical Spreads

Vertical Spreads (Verts) are my bread and butter for trading Options.

For most cases 3 -6 weeks is a good time frame.   I can go out further if warranted such as if I’m looking for IV to fall off.

Bull Spreads:

1. Enter when stock is close to support
2. Exit if 95% of profit is reached OR when less than 4 days is left until expiration.   Exception: If spread is losing money then we can let it ride to see if we get a bounce in the stock.
3. By back the shorts when they are @ .05 or lower.  No need to be greedy for .05.
4. Minimum ROI is 30% before commissions
5. In most cases, the short strikes should be at least 3.5% below current stock price for BLPS and 3.5% above BLCS
6. If the stock price move below both strikes, don’t panic.  Do nothing.  Wait and see if it gets back above the strikes.
7. When Selling spreads, try to pick short strikes where their IV is at least 3 points higher than the long.  This is not crucial but it helps collect more premium when selling spreads.  Reverse for buying Calls spreads.

Bear