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Closing Debit Spreads

In this video, we walk through the process of closing Debit Spreads for the profit targets that we use for the $25K Challenge. Tastyworks and ThinkorSwim platforms are shown here, but the same concepts should apply to any other platform like Robinhood, eTrade etc.

17 Comments

  1. Ashish Surendranath

    Thanks

    Reply
  2. Vic Dhillon

    Read your book and watched the videos along with everything on Discord. Fully realizing we can’t keep an eye on our open positions throughout the day, how do you monitor stop losses? I notice the closing orders you always submit are for profit targets, however for example on a 5-wide spread and closing at a 50% loss if it goes against you, wouldn’t it make sense to put a stop-loss order at $125 as well as soon as you open a position? In other words, perhaps do a bracket order?

    Reply
    • Nishant

      Unfortunately, stop losses don’t work correctly with spreads. The reason for this is that spread prices are almost always quoted wrong by all the broker platforms. The only way to deal with it is to monitor your positions manually. Since I don’t pay attention to my positions unless there are 15 days or less left to expiration, it will be usually easy for you to eyeball your positions which are nearing expiration. In my bigger account > $100K, I usually have 40 positions and it is very easy for me to eyeball them by simply going to the monitor tab and looking at my closing orders.

      Reply
      • Vic Dhillon

        Nishant, thank you for the quick reply. And you are right about the spread price quotes being wrong on the platforms. I just remembered when I got burned on a stop loss I had as a percentage instead of an amount and I got burned because the spread price fluctuated so much I got stopped out for a much bigger loss than I had put it in for. My only concern is with us working full-time during market hours within the 15 days to expiration and by the time you check later in the day after coming out of a marathon meeting etc, the premium has gone past your 50% threshold to something like 70% or 90%.

        Reply
        • Nishant

          The nice thing about spreads is they don’t lose value that fast. It can never happen that the spread loses its value while you are in a meeting. It loses its value slowly. You will have at least 5-7 days to observe the spread losing its value and take corrective action.

          Reply
          • Vic Dhillon

            Thank you Nishant! Appreciated very much.

  3. Charlie Akom

    Hello Nishant, I have a question. Say you post a trade callout with a spread strike of 160-165 at 2.50 dollars. Then later the stock goes down and by the time we get to the trade the same strike of 160-165 is now at 2.00 dollars. Is it ok to take the same trade at a lower cost price and higher profit potential due to strikes are further out the money? Or should we lower the strike price to match the current stock price and keep the same 2.50 price? Also say we take the same strike price of 160-165 while the price is lower and the cost is around 2.00. How would we still calculate the take profit for that specific trade for ROI 94%

    Reply
    • Nishant

      I always recommend that you take the lower strikes whenever possible. This increases your probability of profit. Don’t go for lower price. Check out FAQ#20 in the #25k-trading-method on our Discord server. In the example you have given, you would pick the strikes where the $5 wide spread is trading for $2.50. eg if I posted 160-165 Call Spread and the stock falls and you notice that now the 155-160 spread is trading at 2.5, then take that spread instead.

      Reply
      • kelly Ninja

        Regarding: “if I posted 160-165 Call Spread and the stock falls and you notice that now the 155-160 spread is trading at 2.5, then take that spread instead.”

        Are you saying if you enter into a call spread with strike prices 160-165, and then prices fall, and that ” you notice that now the 155-160 spread is trading at 2.5″, and you will enter in another spread with strike price 155-160? Thanks.

        Reply
        • Nishant

          I am not sure if you are a paying member or not, but this is what I recommend for them. They should always take lower strikes when possible after they get a trade alert from me.

          Reply
  4. Charlie Akom

    I tried to use your bull call spread calculator but it doesn’t allow the maximum spread value to be changed. Or it doesn’t change with different values of same strike pricing.

    Reply
    • Nishant

      It auto calculates the max profit (or max spread value) based on your strikes. It is not meant to be an editable field.

      Reply
  5. Hal

    Hi Nishant,

    I am a new subscriber to your 25K methodology.

    Regarding diversification, should we mix debit call and debit put trades in our portfolio? I assume that we use debit call when stock price below the lower band and debit put when stock price above upper band. Since we are in a bull market, we may use certain ratio of our call and put trades, for example 70% debit call trades and 30% debit put trades. This is an addition to your existing diversification methodology to include trades spread out various expiration dates and to various industries. I am not sure if it helps. Please comment. Thanks……

    Reply
    • Nishant

      PUT spreads have a low success rate in the current market conditions. I try PUT spreads every now and then in our group. The last round of PUT spreads we did, 90% were losers. So, don’t do that in the name of diversification. Diversification should be done for the following :

      • Diversify across Sectors
      • Diversify across the days in a week you open trades, open 1 on Monday, Wed and Fri. If you are only allowed to take 1 trade per week, do it on Wed or Friday.
      • Diversify across weeks. So don’t open a ton of trades on any given week, spread them equally across 4 weeks in a month
      • Diversify across number of trades. Instead of opening 1 huge 5 contract call spread on AMZN, take 5 different 1 contract trades
      Reply
      • Hal

        Great! Thank you so much for your timely sharing……. 🙂

        Reply
  6. Hal

    Watched your video “How to select stock for watch list”. Could you tell me what criteria do you recommend for scanning stocks with high volatility in TofS to further narrow the scan? Thanks.

    Reply
    • Nishant

      Hello, you can add a new “STUDY FILTER” and choose IV_Percentile. Anything with a value > 60% will catch stocks which are currently more volatile compared to their historical price movements.

      Reply

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