Need help setting up a Bull Put (credit) spread
Noob here again. I signed up with this forum about 2 years ago, got sidetracked with a project, and here I am to continue...
I'm trying to setup a simple Bull Put (credit) spread.
For the sake of simplicity lets go with AAPL. The underlying is trading at about 108 today and lets setup for the May 6 2016 options about a month from now.
http://finance.yahoo.com/q/op?s=AAPL&date=1462492800
For more simplicity, lets say I'm selling the put at 118 and buying the call at 98. An equal 10pts each way.
The Put I want to sell is
http://finance.yahoo.com/q?s=AAPL160506P00118000
and the Call I want to buy is
http://finance.yahoo.com/q?s=AAPL160506C00098000
I need help with the simple arithmetic of this trade. What exactly is the price that I'll be selling the 118 Put.... is it the bid price of 10.35? And what am I paying to buy the 98 Call... is it the ask price of 12.65?
Furthermore, what webpage can I use to input these numbers to see a graph of the spread? Any recommendations? I see on Wikipedia a website used called Optioncreator.com and if you look at the Bull Put spread page on optionseducation.org (click on example)
http://www.optionseducation.org/stra...ut_spread.html
it takes you to an Options Simulator at 888optionsnet.com. What other websites are there for this?
First...your best learning tool for this stuff is Tastytrade.com. The daily shows are archived and there are tons of archives to go through.
Second....The spread you described is not a bull put spread. If you sell a put and buy a call both are direction bets that the stock will go up and you have a lot of risk to the downside which will be reflected in the buying power reduction required for that position. By buying that deep in the money call and selling that deep in the money put all you have done is taken a long deep in the money call position and reduced your cost basis by the amount of extrinsic value you paid on the call. You see the put will not be profitable unless AAPL trades above 118 or makes a strong move in that direction. But current option implied volatility for that strike suggests that there is a 84% chance that will not happen. Anyway I could go on about why not to do that combination but I think it would be better to talk about what you are trying to do.
A bullish put spread or a put credit spread would be to sell an out of the money put and then buy a further out of the money put. You sell the expensive one and buy a cheap one (to hedge risk and reduce the amount of capital required) and net a credit and therefore the put spread is bullish. Don't bother selling deep in the money puts...there is less liquidity, you have less extrinsic value and the capital requirements are greater. Keep your spreads at or out of the money and you will do better.
Anyway to finally get to your question about the math. The bid/ask of each option is the spread of the price. The amount you will pay or receive will be somewhere in the middle called "mid-price". How much you give up trying to get filled depends a lot on liquidity and open interest. For a credit spread I usually start a few cents higher, give it a couple of seconds and do a cancel/replace and walk the price up a penny at a time until it reaches mid price...then I might let it sit a minute to see if it fills. I prefer to let the price come to me rather than just give up a couple of cents for a quick fill. When you are doing a spread you are dealing with 2 bid/ask spreads so it is important to stick to very liquid options so you can get in and out without much slippage.
Thanks. Wow did I mess that one up. A Bull Put spread is two *PUTS*... not a put & a call. Right there in my notes. And this...
A bullish put spread or a put credit spread would be to sell an out of the money put and then buy a further out of the money put.
I was under the impression that it's a put below the market price and a put above. Here's a do-over...
For example's sake, lets say I'm going to sell an otm put at 104 and buy another (further otm) put at 100. Here they are:
http://finance.yahoo.com/q/op?s=AAPL&date=1462492800 <--- full chain
http://finance.yahoo.com/q?s=AAPL160506P00104000 <---104 put
http://finance.yahoo.com/q?s=AAPL160506P00100000 <--- 100 put