MAKE $1000 WITH THE PUT CREDIT SPREAD 2021 | ROBINHOOD INVESTING

hey what's going on YouTube and welcome back to tech conversations as always I'm your host emo and as always I'm not a financial expert nor licensed professional if you plan on investing in the stock market please consult with one first and invest at your own risk so today we're finally gonna be taking a look at credit spreads and more specifically put credit spreads there's also called credit spreads and then there's also debit spreads as well so I'll be making a video covering each one of these topics in detail now if you're new to trading options there's I have made a couple of videos where I talk about treating options for beginners I'll put links to those videos in the description below please go ahead and check those out before you continue or none of this won't make much sense to you now by default Robinhood actually disables trading options and buying and selling spreads so in order to enable this you need to go into your settings and then to the options trading section and then you will be able to enable this now keep in mind depending on what level you are you might not actually have access to some of these things okay so for example for me I didn't have access to buying and selling spreads until you know two days ago or so and the way you level up I think is just by you know starting off with the simpler things so buying calls and puts and then you know selling covered call sounding cash covered puts eventually once you've had some experience with this in Robin Hood they'll allow you to enable buying and selling spreads so once you actually can enable it you'll actually see something down here that will say enable a buying and selling spreads just click on that and then you should be all set to go now before we begin guys please keep in mind I invest a lot of my time into making these videos all I ask in return is that you smash that like button and subscribe it would really help out my channel and it would really help out people who are trying to find channels like this so they can become more informed on topics like this before you know going into the stock market and hopefully they don't end up losing money because you know they didn't do the research so thank you guys so much for your support I really appreciate it and that get right into this so for this demo I'm gonna be using American Airlines stock again this is just me picking something out randomly could definitely be well you know be any other stock but we're gonna use American Airlines so it's gonna trade American Airlines options so again we're gonna be talking specifically about put credit spreads and so as the name says we're gonna be dealing with puts okay and so the way this is gonna work is you're gonna sell a put and you're also gonna buy a put and what this is gonna do is it's gonna minimize your potential risk on how much you could potentially lose if you were to just sell a call but you'll also see that you're also minimizing your potential reward okay so again just you know as a refresher when you buy a put you're hoping that the price of the stock goes down but in contrast when you sell a put you're hoping that the price stays around the same if not goes up and so he can kind of see how those are like almost the exact opposite of each other and that's what helps it minimize the risk and we'll be taking a look at that more closely here but I just want you guys to you know keep that in mind so for this demo we're gonna also be using this options profit calculator it is really useful to visualize what's happening on how this is all gonna play out so I'll put a link to this in the description below but I would definitely recommend taking a look at it so what we're gonna do is we're gonna go to spreads and again we were doing put credit spreads we're gonna go to put spread okay and so all you gotta do here is you're gonna find the stock that you want to you know calculate on and so we're using American Airlines so the symbol for that is a al and then you click on get price so this goes and it finds the price of American Airlines okay and again so we're gonna be buying a put and then we're gonna be writing a put or selling a put right so those two mean the same thing right and sell and then so let's start off by selling the put okay because I know a lot of you're familiar with that so we go to select option and then you're gonna get your options for you know what put you want to sell and so up here you have your expiration dates right this is very similar to a you see in Robin Hood and so we'll just leave it at do 19 and then he have the contracts here okay so again price of American Airlines is 16 dollars and 74 cents right now so when we sell a put you know you probably usually want to go down you know and hope that you know the price of the stock doesn't go down but so for this scenario we'll just use 16 dollar strike price okay so we're hoping that the price of American Airlines doesn't fall below 16 on or before June 19th and in return for selling this we're gonna receive one dollar and twelve cents per share now each contract is 100 shares so if I click on this we will receive $112 right and that's what you see right here 112 dollars the option is a sixteen dollar strike price selling a put that expires on June 19th so let's take a look at what you know the the risk involved here so we're gonna receive a hundred twelve dollars regardless of what happens but let's say that the price low American Airlines drops to zero dollars right before the expiration date what happens well you're forced to buy 100 shares of American Airlines at sixteen dollars a share but the price of American Airlines now is zero so basically what that means is you lose $1,600 okay and on robhinhood you remember that you need to put up that amount of money as collateral when you sell the put and so that's $1,600 that you in the plane as collateral it just disappears right so basically lost $1,600 all just forgetting one hundred and twelve dollars right and so that's a lot of money to lose for most of us right and so you know if you might be thinking well that's really risky I would rather my risk not be that high but still be able to sell puts right and get some sort of premium but again my phone potentially losing $1,600 well that's where this put credit spread comes into play so now let's go up here and that's a buyer put as well and see how the risk gets reduced but we'll also see how the total cost gets reduced as well so we're gonna buy a puts a little select option again and again we're going to choose the the expiration date of June 19th and so you want to choose a strike price that's below this the put that you sold strike price and so we'll use $15 okay so we're gonna buy a put at a $15 strike price and as you can see in this scenario we're gonna have to pay 74 cents per share and again there's a hundred shares so I click on this we're gonna have to pay $74 okay so you can start to see here right we sold input and we received $112 but we just bought a put and we had to pay 74 so if you subtract 74 from 112 what do you get you get $38 okay so what this is saying so you're gonna receive 38 cents per share and there's 100 shares so you're gonna receive $38 so this is what I'm talking about when I say your potential potential amount that you can win goes down because before when you just sold a put right you would receive $112 well now when you're doing this put credit spread but most you can gain is $38 but let's take a look at the benefits the advantage of doing this so if you actually click this button calculate it will actually lay out all the details for you and as you can see right so this estimated returns so now you can see here maximum risk is only 62 dollars that's a lot better than the $1,600 that we could potentially lose before right so here you can see that the advantage is that a risk now is a lot less the disadvantage is that the amount that we could potentially make the $38 a max return is not 38 where if we were to just sell the put you know 112 is the most that we could make so now let's take a look at the scenarios here okay what could happen okay so there's three scenarios person area is the most ideal scenario for us and that is that both of these contracts expire worthless right and so basically before this contract expires we would want the price of American Airlines to stay above 16 dollars if that happens then we make $38 which is our met our maximum profit and you can actually see that here if you go to 16 dollars on the date of expiration you'll see you'll get that $38 and as you can see anything above is still 38 right because that's the most that we can make and over here right anywhere in this green you're making a profit and keep in mind you can exit an options trader at any time before expiration so you know anywhere in the green here you could exit and you would still be making a profit right and so again 16 dollars is the you know an expiration date as long as it's above 16 you're making the most that you could potentially make which is $32 now let's see what happens when the price of the stock falls between the strike price of the call each other put day sold and the put that you bought well if we take a look on expiration date again right so 16 you're making 38 now we sold so we saw the 16 dollar put but we bought a 15 dollar put so what happens if it's somewhere in between there right let's say it's 16 8 1580 well as you can see now the mats that we're gonna make is $18 and if we as we keep going down you'll see that that actually keeps going down so if it's 1570 on date of expiration we're only making $8 if it's 1560 now we're losing $2 if it's 1550 we're losing $12 that's gonna keep going down and down and down until it reaches the $15 strike price on the foot that you bought where you will lose the most amount that you can lose which again is 62 dollars okay so how does that work or how does that number come into play well remember right toward a fall of 15 or below it's gonna end up happening is you're gonna buy a hundred shares of American Airlines at $16 a share right so I'd be $1,600 that you're buying with but if it falls to 15 or below what's gonna automatically happen is Robin Hood is gonna purchase 100 shares of American Airlines at $15 a share and sell them instantly so you're gonna be paying sixteen hundred to buy hundred shares then you're gonna be selling one hundred shares at fifteen hundred dollars and so if you subtract fifteen hundred from sixteen hundred that's one hundred dollars that you're losing right but keep in mind you made a thirty eight dollar profit from selling the put from this put credit spread in total so the max loss would be the one hundred dollars you lost - how much you made from the credit spread I was just thirty eight dollars so 100 - thirty-eight that's what gets you to that sixty to maximum risk okay so that's how you get to that maximum risk and so again the most you're gonna lose here is sixty two dollars and you know again as it gets closer to expiration date you know the price could even keep going down and you'd still make $38 right so that this is good right because as you can see there's a lot more green than red which means a probability of you making some sort of profit is a lot higher right then you're not making a profit but again you know the profits only gonna be $38 okay so let me actually go back to Robin Hood now and show you guys how you would you know create this exact same credit spread so we're gonna go so what you can do is you can go to sell put right and we had chosen the sixteen dollar strike price for Joo 19 so you you click on this plus sign and then what you do is you go to buy a put and we have chosen the fifteen dollars so we're gonna do there okay and so this is the exact same thing we saw right we're gonna get thirty eight cents per share which ends up being you know thirty eight dollars since there's one hundred shares so you can continue and we're gonna do one so as you can see it labels that as a put credit spread it understands that it to put spread so again I'm gonna receive $38 you could potentially try to you know go up and you know ask for $40 but again you know people usually try to meet us in the middle if you try to do for you you're older probably won't be filled so then you go to review order and so then you can kind of see what's happening here now keep in mind the amount of collateral that you're always gonna have to put up is gonna be the the put that you're selling the strike price minus the put that you're buying strike price so 16 minus 15 is 1 times 100 okay that's how much collateral you're always gonna have to put up so if I had sold or if I had bought a put at a 14 dollar strike price 16-14 would be 2 times 100 would be 200 so then I would have to put up $200 for collateral okay because that's the most you can lose right $200 - the you know how much credit you're getting for this put credit spread so keep that in mind right you still need to put a collateral and it's gonna be the difference between the strike prices of you know the put that you're selling and the put they are buying multiply it by 100 and so then I would submit this and then I have my put credit spread there okay so again the advantage is your risk is a lot lower disadvantage you know you're the Momo potential profit that you can make is also a lot lower so then you kind of have to weigh out the risk to reward ratio and you know and feel out if this is better for you or not right and so you know I suggest coming into this put spread calculator and just what's a round of the prices you know try to you know use a put buy a put that's a lot lower you know you could do this 11 1 and then calculate that and then you can kind of see you know how how this is gonna change how your maximum risk is gonna go up or down depending on you know the put is farther away the put that you bought is farther or closer away from the put that you're selling right the strike price so definitely worth look at this tool very useful guys so that's all I had for today let me know what you guys think about this put credit spread I said anything that's incorrect feel free to correct me in the comment section below that there's definitely bound to happen sometimes and again guys if you have any questions for me the best way to get ahold of me is through my discord I'll put a link to it in the description below me and my friends we also put we post weekly watch lists on there we talk about day trading swing trading trading options so go ahead and join if you plan on using Robin Hood in the future feel free to sign up using my referral link which is also in the description below if you sign up using my referral link you will receive one free stock which is free money in your pocket so once again guys thank you very much for watching I hope you guys enjoyed this video and next video I'll talk about call credit spreads okay so thank you guys very much have a great weekend I'll see you guys next

Channel: TechConversations

Views: 38,764

Rating: 4.9313779 out of 5

Keywords: credit spreads, robinhood app, robinhood options trading, what are credit spreads, vertical spreads, put credit spreads, call credit spreads, options strategies, how to make money trading options, option trading strategies, credit spreads for beginners, short call vertical, robinhood, credit spread robinhood, credit spreads explained, put credit spread on robinhood, put credit spread strategy, put credit spread, put credit spread explained, credit spreads options strategy

Id: 4YjZ2kPpME0

Length: 16min 16sec (976 seconds)

Published: Sat Jun 13 2020