Hello Traders! Welcome to Tiffany Trades Options. My name is Tiffany and I love to
trade stock options. I created this channel to show you some of my options
trading strategies, as well as to learn additional tips and tricks from you guys
my viewers! In today's video I go over how I sell a put credit spread. I'll try
to answer a few questions along the way, as well as link to some very helpful and
free resources in the description below, and of course if you like the content
I'd be so happy to hear from you, hit the like button, comment, and
subscribe. Look forward to hearing from you. Thanks!
Because this is my very first video, I'm gonna start this channel by trading in a
brand new brokerage account that only has $500. I'm doing this to show anyone
who is starting out that you don't need to save thousands of dollars first
before you can get started with option trading. It's helpful, of course, but
it's not totally necessary. Here I'm using a tastyworks account.
I'm on their web browser platform. Tastyworks does have a downloadable
program but since I'm not often on my personal computer or I'm trading from my
phone I don't really use it very often. For the record I'm not sponsored by
tastywork, so I have no incentive to push their platform over any other. I
also have accounts with E-Trade and TD Ameritrade, so it doesn't really matter
that much which one you use as long as your brokerage firm charges you little
to no fees. If you have any questions about that drop them in the comments. I'm happy to
answer and if you want to use my tastyworks referral code to open your own
account with them, just let me know. I'm not gonna leave it in the links
because I'm not trying to push them, but happy to share if you want it. So if
you've been paying any attention to the market conditions lately you'll know
that the market recently took a giant nose dive from all-time highs. I'm going
to show you a chart for SPY which is the ETF that tracks the S&P 500 index.
This is also a chart for SPX as well. So this is a three-year chart just to sort
of see how the ETF has trended over the last three years, and
you can see that the last time it hit a pretty steep low is in December of 2018.
It hit support around 240, just a little under 240, and in February it got a high of
up to almost 340, and then more recently on March 23rd broke through the support
levels and dropped down to 218, and shot back up again. It's been hanging out
around the 240 mark, so just something to keep in mind when we're
looking at whether to open trades and at which strikes to open them at.
So the interesting thing about this chart is that people will try to time
the bottom and as you can see we've sort of started to increase a little bit over
the last couple of days. I don't think we're totally in the clear with COVID-19
and the financial implications that it's gonna have on the economy down the road
but I do think people want to get back to normal as quickly as possible. So
going back to the three-year chart, we saw that SPY had support around 240,
broke through that support again recently down to about 228, so 230 to
to 240 or so. Today it's trading at 253 even though the market is down today I'm
still going to open a put spread. Generally I try to sell directionally,
which means that if the market is down I will open puts when the market is
up I sometimes will open calls, because it's sort of expect it to go up like
this. Alright so we're gonna open a put spread in SPY today I like to
trade contracts that are usually 30 to 60 days away, and in May 15th is the
monthly expiration which is currently 49 days away, so this is sort of the ideal
timing. I'm going to sell a put at 243 and I'm going to buy it put it to 242.
Remember I'm only starting this account with $500 and I don't have that much
buying power, so I'm going to keep my trade to small for now. Some people will
trade larger widths to collect more credit. For example the
wider you go the more credit is collected but then the more buying power
is reduced, and since this is a small account we're going to sort of limit
that right now. Analyze 244 and 243, so it's only a couple cents difference
between them, so I'm just going to stick with 243 and 242.
And I am both buying and selling at the same time because I wanted to define my
risk in case something crazy happens and SPY completely moves against me. I also
aim for collecting one third of the width in credit, so that is what is
happening right here, 34 cents is about one third of 1.00 and the midpoint is
about thirty five cents, the bid and the ask, I'm going to go ahead and try to get in at this
current midpoint of thirty four. So we're gonna lock the order and review and send.
So this is the confirmation before we hit send.
So my buying power is going to be reduced by $68.32. If
this trade works in my favor the maximum amount of money I can earn is $34 and the
max that I can lose is $66. Alright so we're just gonna kind of hang out, see if
that gets filled and then we'll report back... Sort of a matter of personal
preference but sometimes if you're interested in actually getting into the
trade and you don't really care whether or not you're gonna quibble over a penny
or two, you have the option of adjusting your trade, and maybe you want to go down a
penny to see if it'll get filled at that level instead. So we'll see if that works.
It would be interesting to check on today is the options volume SPY is a very
heavily traded ETF
This is today's expiration which is Friday March 27th. You can see that there's a lot
of activity in SPY today. It's because people are managing their contracts or
trying to make last-minute trades or take profit where they can. Let's see what
May's looking like. So there's a lot of activity here today too.
$243 is actually not very active today, so maybe we'll consider changing
the strike prices. $240 there's a lot of volume, $250 has a lot of volume. Let's do
that. Let's readjust. So even if we move up a couple of strikes we're still trading
around the same price so we're not really losing out by this.
Looks like they are all going for about the same rate. I'm gonna lock this. Again this
is a matter of personal preference, you're not obligated to try to change it
to the downside, but if you wanted to get it filled
it might work in your favor to do this. Here this is only a difference of two
cents it's not that big of a deal to me, so I'm gonna try it and see what happens.
That's about as low as I'm willing to go.
There! That was filled at 32 cents. We're gonna take a look at the effect its had
on our buying power. So you see that this was formerly $500, now this is our
buying power which is $429.68. The total cash balance though is $529.68 which
means that I collected a little under $30 in credit after fees, so that cash is
sitting in my account.
Having buying power will allow me to manage the trade if I need to. If I need
to make some adjustments like go out and increase the strikes or if I want to in
a couple of days I can put on another position. I think for right now what
we're gonna do is just go ahead and monitor this trade.
Some people like to set limit orders to automatically close once their trade
hits a certain percentage of profit, I do that sometimes if I don't have a lot of
opportunity to sort of monitor the market on the daily, or if I'm busy or I'm
away from my computer. So we're gonna do that here. I'm gonna try to capture 55%
of the profit. This is a matter of personal preference. You can do 75$ if you
want -- it'll take longer to get there. If you want to sort of trade frequently you
can capture smaller amounts profit. So if I capture 55% profit then that means
I'll be able to keep $18 of this $30 that I collected. Let's
go to the
activity. Working orders here. Filled orders here. History. These are the fees,
so typically when I'm tracking I will take this price 32 cents
minus these prices, so $29.68. But we could have also easily figured that out
by looking here. We started with $500 and now we have $529.68. Alright, so I'm
kind of a giant nerd and I like to keep a record of my trades. So here I'm going to write
$29.68 cents. This is the amount of credit that I have collected in the
account so far. I'm gonna put ticker symbol there $29.68 so later if I have
multiple positions open and I want to refer back to this and I need to quickly
check how much I made on the SPY trade and
if I want to sort of quickly assess how much profit I want to take on it I'll
often come back and take a look at these, and then I can kind of keep a running
tally of you know buying and closing and how much money have collected each day.
I's just a matter of personal preference. People like to do it
differently, some people actually write it down in journals this is not to
say that this is the end-all be-all of how you track your trades, this is just
what I do its what I like. Okay guys that's my trade for the day, thank you so
much for watching and if you've made it this far just know that I appreciate you
so very much, and again if you have any questions feel
free to drop them in the comment boxes and I'd be happy to answer them for you.
Take care!