Special Topic Option Strategies: Debit Spreads Brian Houston, - - PowerPoint PPT Presentation

special topic option strategies debit spreads
SMART_READER_LITE
LIVE PREVIEW

Special Topic Option Strategies: Debit Spreads Brian Houston, - - PowerPoint PPT Presentation

Special Topic Option Strategies: Debit Spreads Brian Houston, Nison Cer0fied Trainer www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com Risk Disclosure: The risk of loss trading securi0es, futures,


slide-1
SLIDE 1

Special Topic Option Strategies: Debit Spreads

Brian Houston, Nison Cer0fied Trainer™

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-2
SLIDE 2

Risk Disclosure: The risk of loss trading securi0es, futures, forex, and op0ons can be substan0al and is not for every investor. Individuals must consider all relevant risk factors including their own personal financial situa0on before trading. An investor could poten0ally lose all or more than the ini0al investment. Risk capital is money

that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indica0ve of future results. We make no profitability nor performance claims of any kind; all informa0on is published for educa0onal use only. Disclaimer: All informa0on provided herein is published for educa0onal purposes only and should not be construed as investment advice. No profitability nor performance claims of any kind are being made. Trading is a high-risk, specula0ve ac0vity. We are not an investment advisor, financial planner nor registered broker. We are a publisher of educa0onal content. Consult with a registered investment advisor prior to making trading and/or investment decisions. By accessing this site and its products/services you agree to all terms of our Disclaimer . No offer to buy nor sell any instrument is being made on this site. You hereby grant this site a royalty-free, perpetual, worldwide license to display, modify, adapt, create deriva0ve works from, and otherwise use any sugges0ons, ideas, comment posts and informa0on that you provide to this site. None of our content on any site nor courses nor other publica0ons is a promise or guarantee of specific results or future earnings; we do not offer any financial investment nor trading advice of any kind; we publish educa0onal content. We do not purport to tell or suggest which securi0es nor currencies customers should buy or sell for themselves. Our owners, employees, subcontractors, colleagues and/or affiliates may hold posi0ons in the stocks, currencies or industries discussed here. You understand and acknowledge that there is a very high degree of risk involved in

  • trading. It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Tes0monials may not be representa0ve
  • f the experience of other clients, and tes0monials are no guarantee of future performance nor success. Their experiences may not be typical of what you can expect to achieve, as results may vary.

Claims contained within tes0monials have not been verified. Tes0monials, case studies and success stories are individual experiences by persons who have used our services. Although these are accepted from site visitors and customers in good faith, we have not independently examined the trading records of any customers and therefore have not verified any specific figures or results quoted

  • therein. For this reason you should assume that their results are not typical. No representa0on is being made that any account will or is likely to achieve profits of any kind. Generally-expected customer

results are that all traders lose money and do not become profitable, regardless of the training they receive -- trading is a high-risk specula0ve ac0vity and there is significant risk of financial loss

  • involved. Trading involves a substan0al degree of risk and may not be suitable for all investors. Past performance is not necessarily indica0ve of future results. Commodity Futures Trading Commission

(CFTC) Rule 4.41 HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS. The informa0on, services, products, claims, and materials on our sites are provided “as is” and without warran0es of any kind, either expressed or implied. We disclaim all warran0es, expressed or implied, related to strategies and content provided on this site as well as those that are presented in our products and services. All courses, videos and services are licensed for individual noncommercial private use only and may not be resold nor redistributed in any manner. All sales are final and no refunds are offered. Every visitor to this site, and subscriber (or prospec0ve subscriber or customer) acknowledges and accepts the limita0ons of the services provided, and agrees, as a condi0on precedent to his/her/its access to our sites, to release and hold harmless Candlecharts.com, Candlechartsacademy.com and Mycandlecharts.com, its officers, directors, owners, employees and agents from any and all liability of any kind (including but not limited to his/her viewing and/or implementa0on of this sites’ content, emails, webinars, videos, subscrip0on to services and/or purchase of any trader training product or service herein). We encourage all traders to learn to trade in a simulated trading environment using a demo account only, where no risk may be incurred and to not risk live capital.

www.candlecharts.com/disclosure

slide-3
SLIDE 3

Brian has been trading stocks for over 37 years, and has devoted much of his trading career to trading

  • ptions and creating options strategies.

During that time, he has used Steve Nison's candlestick patterns and education to continually improve his knowledge and skills. Recently, Brian has has also added Elliott Wave theory to his set of trading tools, CFDs in Forex, Indices and Gold.

Brian Houston,

Nison Cer0fied Trainer ™

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-4
SLIDE 4

Which Markets

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-5
SLIDE 5

Your Favourite Market

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-6
SLIDE 6

Trader’s Slang

  • Bull Market
  • Bear Market
  • Support
  • Resistance
  • Trend

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-7
SLIDE 7

Trader’s Slang

  • Windows – both rising and falling
  • Lagging Indicators!
  • Oscillator – MACD, Stochas0cs
  • Moving Averages
  • Candles and their colours
  • BULL Calls
  • BEAR Puts

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-8
SLIDE 8

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-9
SLIDE 9

Leverage

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-10
SLIDE 10

The Mul1plier Effect

Where a Nison candle signal confirms another indicator

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-11
SLIDE 11

Option Debit Spreads

CALL Debit Spreads PUT Debit Spreads

  • A Debit is where the trade costs you money ini0ally
  • In the same month
  • BUY a lower strike price

BUY a higher strike price

  • SELL a higher strike price

SELL a lower strike price

  • Ensure you sell the same number
  • The COST of the trade is the maximum loss poten0al
  • Gains are limited but consider your poten0al % gain

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-12
SLIDE 12

Option Debit Spreads

Bull CALL Spreads Bear PUT Spreads

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-13
SLIDE 13

Option Debit Spreads

  • So why do we use Debit Spreads?
  • The market is not expected to move much
  • You want to limit your poten0al loss
  • Breakeven = the Strike Price of the purchased op0on plus the debit

cost

  • GE stock priced at $6.41
  • BUY $5 strike for $1.50
  • SELL $6 strike for $0.65
  • Net Debit of $0.85 with a breakeven of $5.85
  • Maximum risk or poten0al loss = $0.85
  • Breakeven = $5.85

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-14
SLIDE 14

Option Debit Spreads

There are s1ll 3 Strategies for Calls – Puts

  • In the Money (slight bearish market)

Bullish

  • At the Money (neutral to bullish market)

Neutral / Bearish

  • Out of the Money (bullish market)

Bearish

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-15
SLIDE 15

Bullish Engul@ing Pattern at Support

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-16
SLIDE 16

How NOT to use candlesticks

Oh my goodness! The market rallied after the shooting star!

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-17
SLIDE 17

Option Debit Spreads

  • They can be across calendar months
  • Although then called calendar spreads
  • Can be created for any number of days, weeks or months into

the future (expira0on)

  • Have an equal number of contracts on the buy and sell side
  • Work in all markets trading op0ons
  • Higher vola0lity stocks can have larger profit poten0al (and

loss)

  • Can be kept to expiry or closed early!

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-18
SLIDE 18

Bull Call - Debit Spread

  • Market has fallen
  • Appears to have found support
  • Long lower shadow
  • Stochas0cs turned up

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-19
SLIDE 19

In The Money Debit Spread

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

  • Call Debit Spread
  • Conserva0ve trade
  • BUY 100 = $18.00 1.00
  • SELL 110 = $ 9.30 2.30
  • $10 $8.70 1.30
slide-20
SLIDE 20

Bull Call - Debit Spread in Detail

  • You buy the more expensive Call (deeper in the money)
  • You sell the cheaper Call
  • Do this simultaneously
  • Are you conserva0ve in nature or more aggressive?
  • ITM, ATM or OTM trades
  • How many strikes spread do you want?
  • Remember to check open interest on the the op0ons
  • Comfort level with vola0le stocks?

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-21
SLIDE 21

In The Money Debit Spread

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

  • Call Debit Spread
  • Conserva0ve trade
  • BUY 100 = $18.00
  • SELL 110 = $ 9.30

$10 $8.70

  • Breakeven is $100 + 8.70 = $108.70
  • Current Price = $117
  • Less BE price 108.70

$8.30

  • The market can drop this

amount before cos0ng you money!

  • Possible Gain
  • $1.30 / 8.70 = 15%
slide-22
SLIDE 22

At The Money Debit Spread

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

  • Call Debit Spread
  • Conserva0ve trade
  • BUY 110 = $9.30
  • SELL 120 = $3.00
  • $10 $6.30 3.70
  • Breakeven = 110 + 6.30 = 116.30
  • Poten0al profit 3.70 / 6.30
  • = 58%
slide-23
SLIDE 23

Out of the Money Debit Spread

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

  • Call Debit Spread
  • Conserva0ve trade
  • BUY 120 = $3.00
  • SELL 130 = $0.45
  • $10 $2.55 7.45
  • Breakeven = 120 + 2.55 = 122.55
  • Poten0al profit 7.45 / 2.55
  • = 292%
slide-24
SLIDE 24

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-25
SLIDE 25

Roll Out Your Spreads

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

  • If there is 0me and your 0me premium has not decayed excep0onally!
  • New Cost?
  • Ini0al Debit = 8.70
  • Rollout cost - 0.40
  • JUL Debit = 7.85

Plus Rollout = 8.30 SELL 100 JUN - $17.25 BUY 100 JUL 18.70 BUY 110 JUN + $ 8.95 SELL 110 JUL 10.85

slide-26
SLIDE 26

Bear Put – Debit Spread

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

  • Bear Put Spread suggests

downward pressure on the market

  • Maybe you’re stuck in a trading

zone, with a nega0ve sen0ment

  • Determine how nega0ve the

market indicates versus your 0me frame!

slide-27
SLIDE 27

Bear Put – Debit Spread

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

  • CAT = $112.50
  • Consider 1 week op0ons
  • Some room for oscilla0on
  • BUY 117 (1wk) $4.90
  • SELL 115 (1wk) $3.50
  • Debit cost $1.40
  • Poten0al Gain $2 – 1.40 = $0.60
  • Percentage 42.8%
slide-28
SLIDE 28

Bear Put – Debit Spread in Detail

  • Bear Put Debit Spreads are simply the same as Bull Call

Spreads (in Puts instead of Calls)

  • You buy the more expensive Put (deeper in the money)
  • You sell the cheaper Put
  • Do this simultaneously
  • Are you conserva0ve in nature or more aggressive?
  • ITM, ATM or OTM trades
  • How many strikes spread do you want? Remember to check
  • pen interest on the the op0ons
  • Comfort level with vola0le stocks?

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-29
SLIDE 29

Decision Time

  • What is your Risk versus Reward tolerance
  • Debit Spread trading has limited reward poten0al but

some0mes great percentage

  • Big Ques0on: ITM, ATM or OTM
  • In the Money
  • At the Money
  • Out of the Money
  • This all relates to the expected market direc0on within a

par0cular 0me period!

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-30
SLIDE 30

Added Tips

  • The Debit Spread works amazingly well in all consistent and

predictable markets

  • Gentle upwards movement, flat and gentle downwards

movement

  • Remember to control the 0ming of your trade
  • If possible, allow your op0ons to be called away for cash
  • Be comfortable with your Support and Resistance lines!

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-31
SLIDE 31

Quick Summary

  • Debit Spreads
  • Bull Call
  • Bear Put
  • Buy your more expensive strikes
  • Sell less expensive strikes
  • Done simultaneously
  • Will depend upon expected market movement next BUT
  • Can be done with PUTS or CALLS

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-32
SLIDE 32

Quick Summary

  • Take advantage of Time Premium decay
  • Know your Major Support and Resistance areas
  • You must s0ll have a mental stop area where you exit all
  • Consider how long it might take for the market to move
  • Roll out your op0ons depending on market condi0ons

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com

slide-33
SLIDE 33
slide-34
SLIDE 34

From our education to Your Success

Your next step: candlecharts.com/ncs

www.mycandlecharts.com www.candlecharts.com www.candlechartsacademy.com