I don't get bull put spread risk/reward

[Robwynge]

Hey guys,

I am new to options and I'm finding myself mystified by something. I keep reading how a great way to make income in a bull market is by selling puts. I get that selling naked puts is somewhat risky (though not obvious that it's any more risky than just owning shares outright), so if I want to cap my risk, a bull put spread is the way to go.

HOWEVER, every trade I try to set up in Thinkorswim shows a max loss that exceeds the max profit. Coming from the stock/futures world, regularly taking trades with unfavorable R/R is a cardinal sin. Here is an example:

Sell April 145 puts for $18.20
Buy April 140 puts for $17.00

Max profit = $1,200
Max loss = $3,800

That's a 1/3 risk rward! I can widen the spread to up my reward, but obviously that ups my risk too.

The only way this strategy cou

 

[tcca]

http://optionabc.com/Level-One:-Foundation.php
Check this free site out to help grasp the risk/reward side. The part on verticals reflects on your question
If you are new to options look at these 12 free sessions that explain verticals and other option trades. The are by Alex Mendeza and he provides more for free than most charge big bucks for.
Hope this helps clear your head somewhat as they are done in very straight forward manner

 

[galvinlee888]

Quote from tcca:

http://optionabc.com/Level-One:-Foundation.php
Check this free site out to help grasp the risk/reward side. The part on verticals reflects on your question
If you are new to options look at these 12 free sessions that explain verticals and other option trades. The are by Alex Mendeza and he provides more for free than most charge big bucks for.
Hope this helps clear your head somewhat as they are done in very straight forward manner

Here you go ... $3999 folllow.

 

[tcca]

Sorry you think that way Galvin.
I just stumbled on the site recently and watched the free videos.
Yes there probably are further costly seminars and certainly would Not recommend them, but these free ones do have some value that would cost many $$$s from other sites for sure.
I took the Optionetics course over15 years ago when options were somewhat lost in the trading world and they charged and still do charge $4,000 or $5,000 for their introduction course - and actually provide little or no value to becoming a trader. I ended up learning the option business mainly by some helpful traders helping me along in the early years and was just passing on some free info.
I certainly have no vested interest in the site or want anyone to be scammed. It just seemed like a good product at no cost.

If it seemed like a sales pitch I apologize, but someone might find the free info of value
regards
Tc

 

[spindr0]

Quote from galvinlee888:

Here you go ... $3999 folllow.

Wow, I could really use $3999.

Where do I sign up ???

 

[Madison]

Quote from tcca:

If it seemed like a sales pitch I apologize, but someone might find the free info of value

Preposterous! Why would anyone think that??


tcca
Registered: Mar 2011
Posts: 2

 

[etemtezcan]

Quote from Robwynge:

Hey guys,

I am new to options and I'm finding myself mystified by something. I keep reading how a great way to make income in a bull market is by selling puts. I get that selling naked puts is somewhat risky (though not obvious that it's any more risky than just owning shares outright), so if I want to cap my risk, a bull put spread is the way to go.

HOWEVER, every trade I try to set up in Thinkorswim shows a max loss that exceeds the max profit. Coming from the stock/futures world, regularly taking trades with unfavorable R/R is a cardinal sin. Here is an example:

Sell April 145 puts for $18.20
Buy April 140 puts for $17.00

Max profit = $1,200
Max loss = $3,800

That's a 1/3 risk rward! I can widen the spread to up my reward, but obviously that ups my risk too.

The only way this strategy cou

From the strike differences and option value differences one can understand that current price of stock is significantly greater than put strike prices. Thus it is a high probability (about 75 %, guessed from spread prices) that this bull put spread will expire worthless and you will keep the premium.