Overview
This lecture explains how to open and close credit spreads (both put and call) using Robinhood, with step-by-step examples for each scenario.
Credit Spreads Basics
- Credit spreads are options strategies where you collect premium upfront by selling one option and buying another for protection.
- They limit both maximum profit and maximum loss.
- Executing a credit spread involves two trades: one option is sold, and another is bought at a different strike price.
Opening a Bullish Put Credit Spread
- If you think a stock will go up, sell a put at a higher strike price and buy a put at a lower strike price.
- Selling the put gives you premium; buying the lower put limits your risk.
- Example: Sell the $152 put, buy the $150 put on Amazon, collect credit, and limit downside risk.
Closing a Put Credit Spread on Robinhood
- Go to your open position, click “close,” and Robinhood will execute both buy and sell transactions in one step.
Opening a Bearish Call Credit Spread
- If you think a stock will go down, sell a call at a lower strike price and buy a call at a higher strike price.
- Selling the call gives you premium; buying the higher call limits your potential loss.
- Example: Sell the $155 call, buy the $160 call, collect credit, and cap maximum loss.
Closing a Call Credit Spread on Robinhood
- Access your open call spread, click “close,” and Robinhood will handle both legs of the trade together.
Tips and Key Points
- Selling a put spread is bullish; selling a call spread is bearish, even though you're selling options.
- Maximum profit is the initial premium collected; maximum loss is the difference between strikes minus the premium.
- Use “close” in Robinhood to exit spreads quickly and easily.
- Time decay (theta) works in your favor for credit spreads.
Key Terms & Definitions
- Credit Spread — Options strategy where a higher-premium option is sold and a lower-premium option is bought for risk control.
- Put Credit Spread (Bullish) — Sell a higher-strike put, buy a lower-strike put.
- Call Credit Spread (Bearish) — Sell a lower-strike call, buy a higher-strike call.
- Premium — Money received or paid when entering an options contract.
- Theta (Time Decay) — The loss in value of an option as expiration approaches.
Action Items / Next Steps
- Review the steps for opening and closing both types of credit spreads on Robinhood.
- Practice identifying bullish and bearish credit spreads in a paper trading account.
- Watch for upcoming videos detailing when to use these strategies and how much collateral is required.
- Do not copy example trades; use for educational purposes only.