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Credit/debit spreads are one of the best day trading techniques to do, You’ll need level 3 options for this play, it is not hard to get level 3 approval, and after I teach you options, you’ll understand them perfectly fine. Vertical spreads can either be Credit, where you “sell” the spread for profit if it expires out of the money, or sold early. Maximum profit is reached when the credit spreads expires out of the money. We like to do at the money spreads, and deep out of the money spreads. They are hedged on a call the short call is under the long call, and it profits when the stock heads down. You enter the trade by instead of buying the vertical, you press the sell button. To close it down, and you can close it down anytime, even before expiration. You’ll buy it back. This is how you enter a credit spread. When the stock goes against you, you can lose money, you must be careful and use technical analysis to tell which way the stock is going. To do a Debit spread, we’ll use a call for instance this is when you buy the spread, at the money The price of the spread is the short call minus the long call. In this play the long call, will be before the short call. This means when the stock goes up, the spread will reach maximum profit if is under the spread think of it as like a road you travel when it passes through the spread it gains money. If at expiration its above you will double your money depending on where you put the spread, for instance we will put it at the money with a 1 point strike, this means each contract will only be around half of the price. All you need at expiration is for the stock to pass it a measly one point to double your money. You’ll make 50 off of putting up 50, which means you made 100. Great we’ve got it now. To open this trade you’ll use the bid ask. When the ask is greater than the bid, is to open or known as buy to open the trade. To close you use the bid price. Great? It gets even better we can generate tons of money by tripling down, if we lose. Also, because of intrinsic value we’ll be able to only lose some if it goes against us. Remember a credit call profits when the stock goes down, a credit put profits when the stock goes up. A debit spread call profits when the stock goes up, and the debit spread put profits when the stock goes down. The difference of Credit and debit, is a Debit will cost you money to open, and a credit will give you money when you open.
Here’s a video for you to learn this better.
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