SPY ETF Credit Spread Options Example (Bear Call)

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What Is a Credit Spread Option?
In the financial world, a credit spread option (also known as a "credit spread") is an options contract that includes the purchase of one option and the sale of a second similar option with a different strike price. Effectively, by exchanging two options of the same class and expiration, this strategy transfers credit risk from one party to another. In this scenario, there is a risk that the particular credit will increase, causing the spread to widen, which then reduces the price of the credit. Spreads and prices move in opposite directions. An initial premium is paid by the buyer in exchange for potential cash flows if a given credit spread changes from its current level.

Understanding a Credit Spread Option
The buyer of a credit spread option can receive cash flows if the credit spread between two specific benchmarks widens or narrows, depending upon the way the option is written. Credit spread options come in the form of both calls and puts, allowing both long and short credit positions.

Credit spread options can be issued by holders of a specific company's debt to hedge against the risk of a negative credit event. The buyer of the credit spread option (call) assumes all or a portion of the risk of default and will pay the option seller if the spread between the company's debt and a benchmark level (such as LIBOR) grows.

Options and other derivatives based on credit spreads are vital tools for managing the risks associated with lower-rated bonds and debt.

Bear Call Spread
Bull Put Spread

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#CreditSpread #BearCallSpread #SPYStock
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DISCLAIMER:
This video is for entertainment purposes only. I am not a legal or financial expert or have any authority to give legal or financial advice. While all the information in this video is believed to be accurate at the time of its recording, realize this channel and its author makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in this video.

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[JakeBroe]

Give this video a LIKE to support my channel! Also check out my entire playlist on Trading Options here!

[ConanNYC]

Today I closed my position I learned from this video for about 40% profit which was $50, was done just as a test , successful test.

[donvin]

Love the video Jake. I’ve been dabbling in spreads myself and I think I’m hooked.

[mrwsilva]

Really like this strategy, I think I might implement this ASAP. Thanks Jake!

[denniswade]

Excellent job explaining Bear Calls. Would give 2 thumbs up 👍🏽 👍🏽🤙🏽 if I could.

[Nice-Y]

A good time to sell is usually when a stock/ETF deviates away from its 20-day MA/EMA; I also reference the RSI/BBW indicators and use previous support/resistance zones along with fib retracement to minimize risk.

[MannyMor]

The best part about this strategy is that you can be sooo wrong and keep rolling your positions until the market goes your direction and those credits stack and then you come out on top.

[jeancaraux]

would be nice to show your exit plan if the index moves up: how would you adjust and when. Thanks

[billestep]

That’s how you do I when the spy is at all times high. People are nuts for selling puts at all time high. Good job. You can always sell a put credit spread of your short strike gets tested using the same colllateral turning it into a iron condor.

[ifcrbwm]

Great video and great explanation. Thank you! If the market started to move against you, at what point would you close out for a loss? If, for example, after a week the price had already crept up to $445?

[gtaxlondon]

When you said live example i was hoping we could see the progress of the spread over time with price and time changes.

[matthewcrawley]

I was just talking to my buddy about this exact strategy the other day. Great minds think alike!
Thanks Jake. Always great content.

[Wreckohnize]

Hello JAKE is this for price to move sideways? to accumulate ??

[blockaderunner]

does it matter if you sell to close before buying to close?

[MsGorteck]

No doubt this is a stupid question, but can you do the different spread options via CC's & CSP's? Perhaps I am missing something, but in my Roth w/T1 permission, that is all I can do except for long Straddles and Strangles which I do not understand at all. I do the Wheel and I understand IC's, but not Straddles or Strangle s.

[mattttt]

Jake, how would you set up a limit order on a credit spread to help mitigate the potential losses or ensure you hold onto at least some of the premium you earned in the first place?

[coolasafan]

I've been trading equities for a long time now and I am just getting into options as another page in my playbook. I can't quite wrap my mind around risk/reward in options. How can you remain profitable when your risk is 3x your profit? Genuine question. I see a lot of different people saying the same thing. "I'm risking $300 to make $100 and I'm ok with that." Coming from equities this is really hard for me to understand. Thanks!

[BluishLizard]

Hey Jake! Really love your content, I've learned so much since I subscribed to your channel. Considering you take a very well-reasoned and researched approach to your topics I wanted to get your opinion or maybe suggest a discussion topic for one of your future videos.

So many of the Bogle-like, longterm investment/retirement strategies assume an increase in the S&P 500 and US economy on average in the longterm (9.8% increase year over year for instance). Is there any precedent or theories about a slowing economy to the point of no increase or long term sideways trading? What would the investment and trading ecosystem look like in this situation.

While unlikely, with such foreboding things on the horizon like US population growth expected to slow/ possibly become negative and the serious ramifications of climate change, is there any chance we see a plateauing of US economic growth and markets? Possibly event a decline?

So many investment strategies assume long-term growth of US markets, I just am curious if we should question long-held assumptions in pursuit of preparing ourselves for all possible future economic realities.

Thanks for your time!

[Eye_Rant]

So when doing this do you get the premium instantly and what happens if you close it do you lose the premium how’s that work I’m thinking about doing this with Tesla this week that expire this week does that effect you profit as well? I imagine there’s a catch cuz why wouldn’t people just open them to get the credit then close right away?

[dakkon]

Does Schwab make is easy to close/roll the spread together, or do you have to do the two sides separately?