tactics
There’s nothing wrong with placing speculative trades, as long as investors understand they have a low probability of success. 3 Objective
The OTM vertical spread This strategy isn’t always discussed, but traders can use it to speculate. The costs are low because of the credit received from the short option. It’s still a low-probability event but higher than buying the long option by itself. Suppose a trader predicts Caesars will increase above $101 by expiration. (See the table, right). Buy 1 x 100 calls in August Sell 1 x 105 calls in August This is done for a $100 debit.
2108-tactics-adv.indd 50
A price increase above the strike + the debit paid = $101
Probability Max of Profit Profit Low
$400
Max Loss Costs paid of $100
Account Buying Power Required $100
Michael Rechenthin, Ph.D., aka “Dr. Data,” is the head of research and development at tastytrade. @mrechenthin
7/21/21 9:13 AM
