CALL DEBIT SPREAD WITH GUARANTEED PROFIT? | TRADING OPTIONS

hey what's going on youtube welcome back to tech conversations i'm your host guillermo it is may 29th hope you're all having a great weekend so far before i get into today's video all i ask is that you guys hit the like button down below and subscribe guys it really helps out the channel and check out the discord link to it in the description below over 77 000 members completely free to join you can also become a premium member on here for seven dollars a month you'll get access to a bunch of great resources one of them is our alerts here's an example of an alert from last week this was a call option on coin we paid 83 we sold for 130 so made a 47 dollar profit per contract on this alert so check out the discord a link to it in the description below now in today's video i want to touch up on the most asked question that i receive nowadays in fact i already had somebody ask me this today in the morning and again i see this at least once every single day so i want to go ahead and talk about this further here now remember before you ever enter any options trade please make sure you know how to close it i'll pin a video in the comment section below where i show you guys how to close out of any options trade now let's take a look first at what the question is and so the question usually goes something like this so this is an actual question that was asked in the discord today this morning but again i see this at least once every single day so a user on there asked what does it mean if your spread has no max loss no risk but i still pay the premium for the spread and then that same user went ahead and they posted a screenshot of the spread here so this is what they posted and we can see a couple of things here we can see their max profit is one thousand one hundred thirty dollars we can see max loss has nothing there and hovering over over here you can see that it looks like they would make 130 in this range and then up in this range would be their max profit of 1 130 so it basically looks like they have found a play where you can't lose any money okay so let's take a look here at this let's go back to robin hood now um let's take a look at this trade i'm not sure now exactly the strikes that this individual chose or the expiration or even the type but you know just kind of from past experience i do know that that looks potentially like it could have been a call debit spread that this individual was trying to set up so i did go ahead and i found something pretty similar so let's go into the options here for alphabet and again remember when it comes to a call debit spread you first go ahead and you choose your expiration date so i'm just going to leave mine as june 3rd and the way call debit spread works is you try and determine what price you believe this stock will be above uh at the expiration right so on june 3rd what price do i think google will be above let's say i think it's going to be above 2 510 or something like that then what you would do is you would start by selling so let's switch over to sell selling a call at that strike so if i think google will be above two thousand five hundred ten dollars by june third i would go ahead and sell a call there then what you do is you go ahead and you buy a call as well and you buy a call with a lower strike so i'm just going to go to the one right below it right here 2500 and i'm gonna buy this call here and so we see a couple of things here right we see first of all that robin hood uh immediately uh figured out that this was a call debit spread right so we'll tell you here that this is a call debit spread that's how we know we're entering the correct trade here and then we have of course the options we chose we see total credit 22 and then we go down here and as you can see we basically see something very similar to what the individual over here in our question posted right this looks very very similar to this it's not the exact one but it's something very similar where again we see our max profit here of 1023. max loss has a dash here so looks like there is no max loss and just hovering over this we don't see a max loss right we see that you know we can basically make twenty three dollars at least up to you know our max profit of one thousand and twenty three dollars so what is going on here right why does this show that there is no risk that there is no max loss well what about if we went to for example option strat and try to look there and see what option strat tells us so remember option strat is a great way to visualize your trade it'll tell you what your profit or your loss will be depending on the date depending on the share price depending on implied volatility so let's go to build here and let's take a look at what option strat tells us so let's go ahead and search for uh we are using ticker symbol g o o g and we chose june 3rd for our respiration so again we said uh that looked like a call debit spread that user was trying to set up so again in a call debit spread you try and determine what price you think the stock will be above at expiration we said well let's think uh let's pretend we think it's going to be above uh hundred ten 2510 which is right here so you would sell a call at that strike and then you would go ahead and you would buy a call with a lower strike and i said well let's just buy the call right below it at the two thousand five hundred dollar strike so if we take a look here at option strat right it also tells us what this is this is a bold call spread which is the same thing as a call debit spread and it actually tells us the same thing right credit 22 minimum profit of 22 this is telling us that we will leave with a minimum profit of 22. max profit 1022 so what's going on here why is option strat and robinhood both telling us that there is this trade here with no risk is this possible can we get into this trade here and secure 22 dollars well let's go back to robin hood and let's actually try to place this trade right so let's go back to robinhood here so remember we have our option play set up here that's telling us no risk involved so let's actually try and place this trade then right let's see what happens so let's go to continue here and let's go to review order and you're going to see something like this now since robinhood by default right put credit here we'll just go ahead and you know say credit we're expecting a credit and let's submit this let's see what happens here so i'm going to go ahead and submit it and wait for it to go and look what happens right we get an error here so what does this error say yikes unfortunately we can't place this order to open a debit spread because the limit direction you selected is incorrect please confirm and select debit so what happened here here's what happened right robinhood knows this is a call debit spread and it actually tells you up here it's a call debit spread now as the name suggests right we have call because we're using calls but more importantly we have debit because we should be entering for a debit what's the issue with this right now that we're trying to enter this for a credit right so the problem here is that robinhood by default when you go ahead and you select these options right when i select this and then i go here and this is a call debit spread robinhood by default says credit here and that's the problem the problem is when i call debit spread you're supposed to be entering for a debit but robinhood by default is putting credit here making you believe by looking at the p l chart that there is no loss involved here right because you're basically saying hey i'm getting paid 22 dollars to enter this trade and i don't have to put up collateral because if you call debit spread you don't put up collateral and so it makes it look like there is no risk involved here but again the problem here is that with a call debit spread you're supposed to be entering for a debit here we're trying to enter for a credit which is which is just not gonna happen right furthermore okay there needs to be somebody on the other side of this trade now what would the other side of this trade look like well let's take a quick look here let's go over here to a new tab let's go to the options here for g-o-o-g and the person on the other side of the trade would basically be doing the exact same opposite that we're doing so we'll go back up here so originally we're selling a call at the two thousand five hundred ten dollar strike so the person on the opposite side of this trade would be buying that call and then we're buying the call at the 2 500 strike so the person on the opposite side of this trade would be selling this call so what does this look like for the other person who's entering this and by the way this would be a call credit spread on the other side so here right we have the opposite issue here it's telling us hey to enter this call credit spread you need to pay 22 dollars but we know that's not correct right because this is a credit spread in a credit spread you should be expecting a credit you should be expecting to get paid and then put up collateral well here it's say no you need to pay plus you need to put up collateral which just doesn't make sense and if you take a look here the person on the other side of this trade would basically be agreeing to enter a trade where no matter what they're going to leave with a loss a 23-22 loss as you can see here max profit has a dash and max loss would be 1023 dollars right so you know who's going to enter a trade like this where you can you know lose and you know guarantee lose without potentially winning at all right nobody is going to do that and again we're going to see the same issue here if we try to get in for a debit because that's what robinhood on by default is telling us right if we try to go in for a debit it's going to not let us do that right hey this needs to be a credit you need to be entering free credit because this is a credit spread okay so if you ever see anything like this right where there's no max loss or there's no max profit uh it's because you're trying to enter for the incorrect type of trade right if it's a credit you should be a 50 credit spread you should re-enter in for a credit for the debit spread you need to be entering for a debit now ultimately okay um this will usually fix itself right when the market opens most of the time so if you come back on tuesday when the market opens and you go ahead and you you know set up this exact same trade i'm showing you here it's probably going to be fixed by then by default this will probably show a debit and it will make sense but right now it doesn't make any sense and again you're not going to be able to enter something like this where you know you're guaranteed profit it's just not possible and like i showed you guys even if you try to place this robin hood is not going to let you okay so anyways if you have any questions about anything i just talked about feel free to leave them in the comments section below check out the discord link to it in the description below hope you enjoyed the video let me know what you guys think and i'll see you guys next time

Channel: TechConversations

Views: 19,859

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Id: vc_-PwAARsw

Length: 12min 7sec (727 seconds)

Published: Sun May 29 2022