Options Trading Tips: Vertical Credit Spreads [Options Strategy 2020 Update]

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Options trading strategy tips. Vertical credit spreads

Probably the biggest change that I’ve made in my options trading strategy in 2019 and 2020 is that I have began trading credit spreads instead of naked options.

I feel that the enhanced capital efficiency and tail-risk protection from trading credit spreads outweighs the smaller premium received and the difficulty when rolling / managing options positions.


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Comments

BestStockStrategy says:

Your thoughts of naked options vs. credit spreads?

manigandham says:

Interesting change, I've noticed this in your trade alerts. I'm assuming the biggest reason is because of market volatility and tail-risk, especially with what happened last December. A good thing about spreads is that defined risk also means defined margin, so you don't have to worry about changing requirements as underlyings move. This avoids the need to manage available buying power so closely and you can have more positions in play to make up for the lower premiums. They also help with being patient (which is my single biggest issue with losing trades) because they don't impact your overall portfolio as much.

Another thing is that naked options can always be turned into spreads after being opened. I sometimes do this when the underlying moves against me but I'm still confident in the strike. It's cheap protection in case of a further move, costs less than opening a spread from the start, freezes the margin requirement, and opens up buying power so that you can focus on other profitable positions.

I still find naked options are more profitable and flexible, and builds the discipline to keep positions small, but spreads are definitely very useful.

Mark Kurowski says:

I've been saying that for years, then I bought your course in the hopes of hearing convincing arguments in favor of naked premium instead, but nope. Perhaps you should buy MY course for $1349.

Adam Piech says:

Two totally different beasts imo. Spreads have different dynamics, more complexities and hedge the greeks which are working in your favour when naked. One needs to adjust their position size, profit targets and expected time in trade to get comparable results to naked, not to mention issues with rolling out in time. I'll be interested to see which route you take as you progress.

Mountain Evergreen says:

Options have to be very liquid to trade spreads, naked options easier to manage and and execute

Max Eisenhardt says:

You've advocate in your videos to sell vertical put spreads (as opposed to call spreads) on major S&P stocks because, as you explain, the market is overly pessimistic and the stocks will rebound sooner or later. However, from my experience, the opposite seems to be true regarding smaller cap stocks and especially "trendy" stocks. I've earned consistently by selling call spreads on shitty IPO's like ETSY.com, Shopify, & Chewy. And I've noticed that once these stocks tank, they might rebound only years later if at all, so a short term option is a pretty safe bet. I'd like to know what your opinion is on the matter. Thanks!

spetts75 says:

Fantastic video!! This was the one thing I have been struggling with after watching your other videos. The market is due for a major correction (1987, 2000, 2008,….). Trading naked I could easily wipe out a small account even if only trading a couple 1 contract positions. Great advice! 😀

Rony John says:

Does trading credit spreads come with lower annual returns than naked options? Would you trade credit spreads, if we do get a market like in 2017?

Richard Rodriguez says:

I have to say you have changed my strategy and its been very effective with the limited resources i have. I have been using cash secured puts in general and i am impressed. I thank you. Once i get my account up to 30k i will look at the next level (your classes, possible mentorship) again thank you. What you teach is powerful.

InternationalHusler says:

Good Day David my question is how much of a reduction will with accuracy be by trading spreads instead if naked puts from what I remember you were able to achieve 90% accuracy when you had the option to roll the position now that you no longer have that option can you still achieve 90% accuracy

Thanks and have a good weekend.

wisdomwithwit says:

Look for my upcoming video. David Jaffee is a scam for trading vertical spreads.

Nick Darling says:

David – the last statement on your site unless I missed it is from 2017. Do you publish more recent statements?

HAPPY HEDONIST says:

Hi David. For people who enrolled in your course are they eligible for updates made to the course or do we need to purchase your course again ?

Robert Henningsgard says:

David, I had noticed your strategy shift. I did the same thing pretty early in my trading career (this year), for exactly the same reasons you stated. So I agree with you 100%. By the way, I just renewed my subscription to your tips. I wish you could scale your pricing to a factor of peoples' account size (mine isn't very big), but your tips are still worth the price. I am kind of surprised to see how low the IV ranks are on some trades you make, but you did state in your course that IV does not play a major role in your decision-making. It does play a pretty big role in mine. All the best, David!

Chace Bonanno says:

How do you think vertical credit speeds should be managed?

Brian Thompson says:

Still think the 2 credit spreads for every 1 naked put is still a good ratio?

Amanda Cherra & Co says:

Is naked options same meaning as naked puts?

20MDM says:

woah, you're looking better than ever before.

REAL P&L says:

I agree with the comment about David being the only credible youtube mentor with a course. I have studied every options trading youtuber I can find and none of them show their P&L except David J. I show my P&L on my channel but I am not selling a course.

REAL P&L says:

Excellent choice to move towards spreads. You are not benefiting from capital efficiency because you are not sizing up. The main reason to add longs to your short puts is for tail risk. The long can be very far out of the money (thus low in cost) unlike most of the traditional credit spreads being taught. The main thing to understand is a second order greek called Vomma. I wrote about this in Chapter 10 of my book A Portfolio For All Markets.

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