In the Money Debit Spreads – Good Idea?
Video Summary
In this article, the author discusses vertical spreads, specifically debit spreads, and how to use them in the money contracts. The author explains that debit spreads are a type of trade where the buyer pays a net debit to open the trade, whereas credit spreads are where the buyer receives a net credit.
The author explains that debit spreads can be used to profit from a stock’s price movement, but the reward is limited to the width of the spread, while the risk is unlimited. To reduce the cost of the contract, the author recommends buying a call option that is in the money and then selling a call option at a higher strike price. This strategy is known as a bull call debit spread.
The author then explains that if the stock price remains at or above the strike price of the contract, the contract will expire in the money, and the buyer will make a profit. However, if the stock price falls, the buyer will lose money. The author concludes that in the money debit spreads are a way to make money on a stock that is likely to move in a certain direction.
The author also discusses out of the money put credit spreads, where the buyer sells a put option and buys a put option at a lower strike price. This strategy is the opposite of the in the money call debit spread, but the risk and reward are similar.
The article concludes that some traders prefer in the money call debit spreads over out of the money put credit spreads, but the probabilities according to the Black-Scholes formula are similar. The author encourages viewers to give the video a thumbs up if they enjoyed it, and to ask questions or seek help in the comments section.
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