This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Intro to Vertical Spreads with Randall Liss

8/08/14 2:52 PM EDT
Randall Liss explains the downfall of buying and selling options outright and how he uses vertical spreads to put on positions. In selling an option outright, the most you can make is the premium received, but you expose yourself to unlimited downside. In buying an option outright, timing is critical due to the negative effect of time decay. Therefore, Liss advocates for spread positions, the simplest being the vertical spread. An example of a vertical spread would be a case in which a 90 call sells for $8 and a 100 call sells for $2. By buying a 90 call and selling a 100 call, you would be taking on a position for a basis of $6 (the difference between $8 and $2), and this $6 would be the maximum amount you could lose. The most the spread can be worth is $10, because you will have the right to buy at $90, and will have to sell at $100. The least it can be worth is $0, and so you are risking $6 to make $4. The converse of this call spread would be a put spread, in which you do the same thing except for adjacent put options. Liss explains why a put spread produces the same risk parameters as a call spread, but because you are receiving payment upfront as opposed to outlaying the payment, he prefers this position known as a credit strategy as opposed to a debit strategy.
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
Top Rated Stocks Top Rated Funds Top Rated ETFs