question about bull spread trading

G

ggelitetrader000

Hello all, I am relatively new optoin trader with about 1 years of experience. In the past I have been trading simple long options and straddle calls with moderate success. I am interested in doing couple of bull call spread (buy open lower strike calls + sell open higher strike calls) to pocket the difference between hi-lo strike calls - net debit. I inspected the my etrade brokerage account's advanced trading interface and they allow spreads so I can input the trade in one execution with 2 legs. However in the price type I see following:
market
net debit
net credit
even.
I understand first one: market for sure. But I dont know what the rest 3 price types. Can anyone explain to me? Thanks!
 
Net debit. You pay the premium because the long option is more expensive.

Net credit. You collect a premium because the short option is more expensive.

Even. Premiums from Long and Short option are equal.


Choosing the wrong one can make your spread outrageously cheap or expensive. Never trade spreads on market price.

Generally, it's buy with a debit or sell to get a credit for simple spreads.
 
Thanks Xandman, I will not quite on ths net debit and credit part. I think I saw something more descriptive on my another trading platform, I will have to look. My understanding is net debit is for long options and expecting the price to go up and net credit is for short options and expecting the stock price to go down. For simplicity, I will be sticking to long positions only for now.

Why would you suggest never trading spread on market price? Because of gap between bid/ask?

I actually tried with very small amount of money 400$ by purchasing two legs both at market price:
XYZ stock:
buy to open call at strike price X
sell to open call at strike price X+Y.
Now in the position both of them shows as calls. however sell to open calls appearing as negative values which I expected.

Not sure what I would say with net debit or net credit. Thansk!
 
Quote from ggelitetrader000:

Thanks Xandman, I will not quite on ths net debit and credit part. I think I saw something more descriptive on my another trading platform, I will have to look. My understanding is net debit is for long options and expecting the price to go up and net credit is for short options and expecting the stock price to go down. For simplicity, I will be sticking to long positions only for now.

Why would you suggest never trading spread on market price? Because of gap between bid/ask?

I actually tried with very small amount of money 400$ by purchasing two legs both at market price:
XYZ stock:
buy to open call at strike price X
sell to open call at strike price X+Y.
Now in the position both of them shows as calls. however sell to open calls appearing as negative values which I expected.

Not sure what I would say with net debit or net credit. Thansk!
More...

if you buy a put its a net debit and your expecting the stock price to go down

if theres a market with quotes
2/9 for 80strike call
7/13 for 70 strike call
and you buy the bull spread at market prices you paid $11 If you think thats good then let me know before you place orders
 
You must log in or register to reply here.
Back
Top