When we think that a ** is bullish or bearish, but we think it will be a slow bull or a slow bear**, it is better to use a vertical spread option strategy than other commonly used option strategies.
In general, there are four vertical spread strategies, which are: Bull Call Vertical, Bull Put Vertical, Bear Call Vertical, and Bear Put Vertical.
The names of these four strategies seem to be a bit tongue-in-cheek, but it doesn't matter, just draw the profit and loss of the strategy to know what's going on. (However, for the sake of memory and understanding, I will only talk about the bull call vertical and put vertical spread strategies here, and the other two strategies will be discussed later.) ）
The P&L curves for the bullish call vertical and put vertical spreads are the same, as shown in Fig
Bull vertical spread strategy portfolio P&L chart (the P&L curve is the same for the call and put combinations).
From the figure, we can find that the return and loss risk curves of these two strategies are the same, and they will only have a profit when the target is ***, and a loss will occur when the target is ***.
Since the P&L curves of the two strategies are the same, does it mean that when applied in a bull market, the results obtained by using the vertical spread of call options and the vertical spread of put options are the same? My personal opinion on this issue is no.
Let's take a look at the differences between the options combinations of these two strategies:
1.Bull call vertical spread: ** a call, the strike price is k1; At the same time, sell another call, the strike price is K2; where k1 is k2, and both options have the same expiration date. (For example, if you are bullish on XYZ** and now the stock ** is 100 yuan, you can use this strategy to long a call with a strike price of 100 yuan and contract ** is 2 yuan, and at the same time short another strike price is 103 yuan and contract ** is 1.)5 calls; HereLong positions are at-the-money options and short positions are out-of-the-money options；The maximum drawdown is -05 100 yuan, the maximum gain is 2$5 100).
2.Bull Put Vertical Spread: ** One put, the strike price is K1; At the same time, sell another put, the strike price is k2; where k1 is k2, and both options have the same expiration date. (For example, if you are bullish on XYZ**, and now the stock** is 100 yuan, with this strategy, you can be, long a strike price is 100 yuan, and the contract ** is 1.)A put of 5 yuan, and at the same time short another put with a strike price of 103 yuan and a contract ** of 2 yuan; HereLong positions are at-the-money options and short positions are in-the-money options；The maximum drawdown is -25 100 yuan, the maximum return is 0$5 100).
Judging from the combination and examples of the above two strategies, when it comes to bullishness, the call vertical spread strategy is better than the put vertical spread strategy because the former loses less and gains more, while the latter loses more and gains less. But don't forget, I said it in the first sentence of this articleIn slow bulls or slow bears**, it is better to use a vertical spread strategy
AlthoughSometimesThe profit-to-loss ratio of the call vertical spread strategy is theoretically better, but its drawback is also obvious: only the underlying stock priceIn the short termThe strategy can only realize the benefits when it is large. The advantage of the put option vertical spread strategy is that as long as the underlying ** is not a big fall, the profit can be realized. In other words, the latter is better than the formerOne more chanceGet earnings, ieHave a higher win rate。So, both are justOn the surface, the profit and loss curve looks the same, but the logic of the actual application is different
For me personally, if I were bullish on a certain **future**, I would rather choose to use the put vertical strategy than the call vertical strategy. Moreover, even if the underlying **is indeed ** and the long put is exercised, which makes me hold **, since I am bullish on the stock, then I will be happy because of the low cost of getting **. Slow bulls with more sideways than $Apple(AAPL)$ are particularly suitable for bullish put vertical spread strategies, and if you use a bullish vertical spread strategy, you will lose money.
Apple stock price ** chart (2021 2 2022 2).
No one can make an accurate prediction before every short-term substantial, and if they can do that, then only long options, not vertical spread strategies. When doing options trading, don't only look at the theory and not look at the actual situationThe more beautiful something in theory, the more doubtful its feasibility should be。For example, long options have unlimited returns and limited losses, but it is the buyer who often loses money instead of the seller; For example, what I'm talking about here today, the vertical spread of put options in a bull market and the vertical spread of call options have the same profit and loss curve, butSometimesIn practice, the latter may lose much more than the former.