Credit Spreads for Beginners
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Figure 1: The Disney Options Chain for September 4, 2020 (Source: Nasdaq.com) – Page 23

Figure 2: How a Bull Put Spread is constructed in your broker. You are selling 1 OTM put option at 290, and buying 1 ITM put option at 270. For this example, we used the November 20th options, which had 26 days to expiry at the time the screen capture was taken (source: Tastyworks) – Page 24

Figure 3: How a Bear Call Spread is constructed in your broker. You are selling 1 OTM call option at 270, and buying 1 ITM call option at 290. For this example, we used the November 20th options, which had 26 days to expiry at the time the screen capture was taken (source: Tastyworks) – Page 27

Figure 4: The Short Iron Butterfly Spread Visualized – Page 32

Figure 5: The SPY options chain with 33 days to expiry. You can see the deltas for each strike price with the call deltas on the left and the put deltas on the right. You can also see the implied volatility (27.1%) for the underlying in the top right hand corner. (Source: Tastyworks) – Page 46

Figure 6: Gamma for different strike prices of Disney Calls at 3 different time periods – Page 49

Figure 7: The option premiums for an OTM 343 call option for the SPY ETF with different times remaining until expiry. (source: Interactive Brokers) – Page 50

Figure 8: The Netflix options chain showing days to expiry. For credit spreads, we would look at the November 27th (33 days to expiry) and December 4th options (40 days to expiry). This allows us to capture as much of the premium as possible without holding our position during periods when options prices are doing nothing. (Source: Tastyworks) – Page 53

Figure 9: Trendlines in TSLA for YTD 2020 (pre-stock split). (Source: TradingView) – Page 70

Figure 10: An Example of Dynamic Support on SPY (Source: TradingView) – Page 72

Figure 11: Gold price breaks through the previous resistance level of $1,690, which then becomes the new support level (Source: TradingView) – Page 73

Figure 12: A Strong Swing Point in SPY (Source: TradingView) – Page 74

Figure 13: A Range in AT&T (Source: TradingView) – Page 74

Figure 14: Bollinger Bands in AT&T (Source: TradingView) – Page 77

Figure 15: Choppiness Index on SPY (Source: TradingView) – Page 87

Figure 16: Differences in Strike Prices for Microsoft (Source: Interactive Brokers) – Page 90

Figure 17: The Correlation Between the VIX and the S&P 500 from Aug 2019 to Aug 2020 (Source: TradingView) – Page 97

Figure 18: Order Entry Screen in Interactive Brokers – Page 103

Figure 19: Setting up a Take Profit Order in Tastyworks – Page 104

Figure 20: The excitement vs. boredom concept visualized – Page 117

DISCLAIMER: The preceeding text is presented for informational purposes only. None of the information herein constitutes an offer to sell or buy any security or investment vehicle, nor does it constitute an investment recommendation of a legal, tax, accounting or investment recommendation by Freeman Publications, its employees or paid contributors. This work is based on SEC filings, current events, interviews, corporate press releases, and what we’ve learned as financial journalists. It may contain errors and you shouldn’t make any investment decision based solely on what you read here. It is your money and your responsibility. There is no magic formula to getting rich, in the financial markets or otherwise. Investing often involves high risks and you can lose a lot of money. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and analysis. Please do not invest with money you cannot afford to lose.

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