Not left of center?
- Dec 5, 2006
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You're short the closer to the money option, so if the implied volatility of that option goes up by more than it does for the option you're long, which is further out of the money, I'd expect your net position to show a loss no?When the underlying goes up but somehow your put credit spread goes red. How does that even happen mathematically?
I’m assuming that’s “an 87% probability [assuming certain baked-in assumptions hold true]”? I have spent no time looking into how these strategies work.Here's a little play with CVNA. Max profit is 140 and max loss is 860 but there's an 87% probability of profit. I mean, it would have to drop from 232 down to a BE of 188. 14% in a month, which you'll get on June 18th at any price over 190, isn't bad.
CVNA Credit spread Calculator shows projected profit and loss over time. A credit spread is a two-option strategy that results in an initial credit to the trader. It can be used in both a bullish and bearish market depending on the configuration.opcalc.com
Pretty much. Black-Scholes calculation based off 30 day IV. And it's not 87% chance of max profit but that chance of some profit.kI’m assuming that’s “an 87% probability [assuming certain baked-in assumptions hold true]”? I have spent no time looking into how these strategies work.
Thanks. I had a very general understanding of the mechanics, was just curious about how the probability calculation comes about.Pretty much. Black-Scholes calculation based off 30 day IV. And it's not 87% chance of max profit but that chance of some profit.k
This spread strategy works with either calls or puts and can be bullish or bearish depending if it's a call (bearish) or put (bullish.) You buy one option further from the current price of the stock then sell another option, same expiration date, closer to the money. The one you sell will give a bigger credit than the debit of the one you bought and your risk is limited to the spread between strike prices minus the credit you initially received. That credit is your max profit.