There is zero money to be made in buying an ITM debit spread, but there is the risk of losing the debit paid.
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Vertical spread example
- Thread starter Jackson Pollack
- Start date
There is zero money to be made in buying an ITM debit spread, but there is the risk of losing the debit paid.
Do you think the result be different if my SHORT call is instead at strike price $213 (collecting a premium of $5.78)? This OTM SHORT call is way out of the money from current underlying price $208 AND would also be out of the money when the underlying reaches my target of $212. Max profit on my trade would be 213-195=18 minus (18.08-5.78) = $5.7
In this case, if underlying price hits $212, and I close out my vertical spread position, my LONG 195 call would be $4 more in the money, but the SHORT 213 call would still be out of the money and not exercisable. Seems like then my profit would be the full $5.7.
Am I still not getting it? This is slightly different now because not both calls are ITM or ATM, but instead one is deep ITM and the other is way out of the money (and even farther than where my target underlying price is).
If you were trading to perfection, then your short strike is where the underlying would be at expiration. Not a penny more. If the underlying was below your OTM call, the the trade would have been less than perfect because you didn't get the maximum possible extrinsic value accruing to you.
Also in practice, it is very difficult to trade relatively deeper ITM spreads because the spreads are much wider and we have less leeway for slippage. So, that's both structural and because of your extrinsic value cushion.
I think you are absorbing the material well, but your "aha" moment would come from modeling and visualizing the changes.
And, you need to move forward with the greeks. This intrinsic/extrinsic jargon is the exchange's terms for educating the non-participating public. Greeks are more multi-dimensional.
Also in practice, it is very difficult to trade relatively deeper ITM spreads because the spreads are much wider and we have less leeway for slippage. So, that's both structural and because of your extrinsic value cushion.
I think you are absorbing the material well, but your "aha" moment would come from modeling and visualizing the changes.
And, you need to move forward with the greeks. This intrinsic/extrinsic jargon is the exchange's terms for educating the non-participating public. Greeks are more multi-dimensional.
Yeah, everything is a loser, except those outright weekly calls you keep buying, and buying ... and buying. I have made money with greater confidence trading verticals.There is zero money to be made in buying an ITM debit spread, but there is the risk of losing the debit paid.
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Ignore him. He has spouted this garbage for years and he still isn't right. Now he has taken an even more extreme position that there is ZERO profit potential in a vertical.
Seriously, OTM. Just stop it.
WHAT ARE YOU TALKING ABOUT?? Besides your one lot crazy spec plays have you ever traded options?There is zero money to be made in buying an ITM debit spread, but there is the risk of losing the debit paid.