Make Money When Stocks Crash (Call Credit Spreads for Beginners)
Summary
TLDRThis video script outlines a call credit spread strategy for generating income from stocks like Nvidia and Meta. The presenter advocates for using this strategy in bullish or peaking markets, emphasizing the importance of stock selection and managing positions to minimize risk. The script also discusses the concept of alpha generation and provides examples of setting up call credit spreads for short-term gains with a focus on safety and consistency.
Takeaways
- 💹 The speaker suggests a strategy to make a 10% return in a short time by using call credit spreads, which involves selling call options and buying higher strike price calls to create a spread.
- 📈 They recommend using this strategy for stocks in a bullish or peaking market, like Nvidia, which has recently pulled back and is considered a good candidate for a call credit spread.
- 📊 The speaker emphasizes the importance of stock selection and using technical analysis to identify stocks that are at the high end of their range or showing resistance, like Meta's triple top pattern.
- 💼 They advise on managing the position properly to minimize loss, even if the stock moves against the spread, by closing the position before expiration if the stock price approaches the strike price.
- 💰 The potential to earn a 10% return in a short period, such as 4 days, is highlighted, with the example of selling a 530 call and buying a 535 call for Meta, which could yield about a 10% return.
- 📉 The speaker discusses the concept of 'alpha' in investing, which refers to the excess return over a benchmark, and how call credit spreads can be used to generate alpha.
- 🔢 Delta is mentioned as a key factor in selecting options for the spread, with the speaker preferring a Delta of 12 to 15 for a higher success rate, although not guaranteed.
- 📆 The script explains that the time frame of the trade affects the potential return and risk, with shorter timeframes offering quicker returns but less time for the stock to move.
- 🚫 A caution is given against putting all investment capital into one strategy, advocating for a diversified approach and position sizing to manage risk.
- 📈 The potential for consistent passive income through the call credit spread strategy is highlighted, with the speaker sharing their personal success and strategies for scaling income.
Q & A
What is the potential return on investment for a $444 position if managed properly?
-The potential return on investment for a $444 position could be a 10% return in a short amount of time if the position is managed properly.
What is a call credit spread and how does it work?
-A call credit spread is an options trading strategy where an investor sells an out-of-the-money call option and buys another call option with a higher strike price, both with the same expiration date. It's a limited-risk strategy that profits if the underlying stock's price remains below the higher strike price at expiration.
Why is Nvidia chosen as an example for the call credit spread strategy?
-Nvidia is chosen as an example because it is in an interesting market position, having pulled back a lot, which makes it a potentially good candidate for a call credit spread strategy in both bullish and range-bound markets.
What is the significance of the Delta value in the context of the call credit spread strategy?
-The Delta value indicates the sensitivity of the option's price to changes in the price of the underlying asset. In the context of the call credit spread strategy, a lower Delta (between 12 to 15) is preferred for safety and consistency, indicating that the position is less likely to be affected by small price movements of the underlying stock.
How does the call credit spread strategy contribute to generating alpha in a portfolio?
-The call credit spread strategy contributes to generating alpha by providing a way to earn income from options premiums, which can lead to returns that exceed the market average. Alpha represents the performance of an investment relative to a benchmark, and this strategy can help investors beat the market by consistently generating extra income.
What is the recommended approach for managing a losing position in a call credit spread?
-If a position in a call credit spread starts to lose value, it is recommended to manage the position properly, which may involve closing the position before expiration or adjusting the strike prices to minimize losses. The goal is to ensure that even in a loss, the total amount at risk is not entirely lost.
Why is it suggested to use a call credit spread on a stock that is at the top of its range?
-A call credit spread is suggested for stocks at the top of their range because it capitalizes on the expectation that the stock price will not increase significantly above the higher strike price. This strategy can be profitable if the stock remains stable or decreases in price.
What are the risks associated with the call credit spread strategy?
-The risks associated with the call credit spread strategy include the potential for the underlying stock's price to rise above the higher strike price, resulting in a loss. Additionally, there's the risk of not managing the position correctly, which could lead to greater losses than anticipated.
How does the implied volatility affect the profitability of a call credit spread?
-Implied volatility affects the profitability of a call credit spread by influencing the premium received from selling the call options. Higher implied volatility typically results in higher premiums, which can increase the potential income from the strategy.
What is the importance of position sizing when using the call credit spread strategy?
-Position sizing is crucial when using the call credit spread strategy to manage risk and ensure that the potential losses from any single trade do not significantly impact the overall portfolio. It's recommended not to put all of the portfolio into one strategy to maintain diversification and balance.
Outlines
💹 Introduction to Call Credit Spreads for Income
The speaker introduces a strategy for generating income through call credit spreads, emphasizing the potential to make a 10% return in a short time frame. They highlight the strategy's suitability for bullish and peaking markets, using Nvidia as a case study due to its recent price pullback. The speaker, an Nvidia bull, explains the concept of selling out-of-the-money call credit spreads and managing positions to minimize losses. They stress the importance of stock selection and managing risk, aiming to show viewers how to consistently generate additional income through this options strategy.
📈 Safely Implementing Call Credit Spreads with Meta and Nvidia
The speaker discusses the technical analysis behind choosing Meta for a call credit spread, pointing out its triple top pattern as a sign of resistance. They demonstrate how to set up a safe call credit spread with a low delta, aiming for a 10% return in a short time frame. The speaker also touches on the importance of implied volatility and the bid-ask spread, and how these factors influence the strategy's profitability. They provide a step-by-step guide on how to open, manage, and close a call credit spread position, emphasizing the need for consistency and safety in trading.
🔄 Creating Passive Income with Call Credit Spreads
The speaker advocates for a reliable and repeatable strategy, focusing on the passive income potential of call credit spreads. They explain how this strategy can be applied regularly to generate consistent income, even on a short-term basis. Using Nvidia as an example, the speaker illustrates how to capitalize on a short-term bullish move while still creating income through an out-of-the-money call credit spread. They discuss the importance of position sizing and not relying solely on one strategy, suggesting a diversified approach to maximize income while managing risk.
🍫 Exploring Call Credit Spread Opportunities in the Chocolate Industry
The speaker shifts focus to potential call credit spread opportunities in the chocolate industry, specifically mentioning Hershey's as a candidate due to increased competition and rising costs. They suggest that these market conditions could make Hershey's a good target for a call credit spread. The speaker also briefly mentions Coinbase as another potential candidate for this strategy, based on its recent price pullback. They encourage viewers to watch more examples of using credit spreads for income and to consider diversifying their portfolio with this strategy.
Mindmap
Keywords
💡Call Credit Spread
💡Delta
💡Bullish
💡Implied Volatility
💡Alpha
💡Position Sizing
💡Passive Income
💡Resistance Level
💡Bid-Ask Spread
💡Portfolio Scaling
💡Consistent Passive Income
Highlights
Making $59 by risking $444 with a 10% return in a short time using call credit spreads.
Using a small portfolio of $10,000 to make an extra $1,000 a week with call credit spread strategy.
Nvidia is chosen for its interesting market position, making it ideal for call credit spreads in bullish and peaking markets.
Call credit spread is a strategy that can work even if the stock price increases slightly, stays the same, or decreases.
The importance of proper stock selection for executing a successful call credit spread.
Alpha generation is explained as beating the market return, exemplified by outperforming the S&P 500.
Managing a losing position in a call credit spread to minimize loss.
Using a low Delta of 12 to 15 for high success rates in call credit spread trades.
Meta (Facebook) is highlighted as an example of a stock with a triple top pattern, suitable for a call credit spread.
The significance of implied volatility in options trading and how it affects the premium received.
A detailed walk-through of setting up a call credit spread on Meta with a 10% return in 4 days.
The concept of passive income through consistent call credit spread trades every 2 weeks to 2 months.
Nvidia is presented as a short-term bullish play with a call credit spread for income generation and position hedging.
The strategy of selling out-of-the-money call options to create income while hedging long stock positions.
Position sizing advice to avoid putting all money into one strategy and the importance of strategy diversification.
Hershey's is identified as a potential call credit spread candidate due to increased competition and cost pressures.
The potential of using call credit spreads on tech stocks that are considered expensive or have reached high price points.
A reminder to check out additional resources for more examples and education on using credit spreads for income.
Transcripts
so check it out you can make $59 by
risking
$444 right now and you will never lose
the entire amount if you manage this
position properly and you're going to
make a 10% return in a very short amount
of time the way I make an extra $1,000 a
week by using a small portfolio like
$10,000 is by utilizing call Credit
spreads I want you to copy this call
Credit spread strategy to make $1,000
per week by yourself I'm going to be
showing you different examples we're
going to be using Nvidia because Nvidia
is in a really interesting position
right now this strategy is ideal for
bullish and peing markets so basically
right now since a lot of tech stocks are
very high or have at least gone up a lot
and are showing signs of pullbacks
especially Nvidia as it's pulled back a
lot Nvidia can be a very interesting
setup for a call card spread carefully
now the reason why I'm picking Nvidia
although I'm an Nvidia Bull and you
might think to yourself a call Credit
spread is a bearish strategy I'm going
to show you an out of the money call
Credit spread on Nvidia Tesla and we're
going to look at another pick in my
portfolio right now now check this out I
am bullish on Nvidia I'm selling puts
however I want to show you a very
short-term play with a very low Delta
now for me guys I use a Delta of 12 to
15 and I basically win every single time
now I'm not going to BS you I don't win
100% of the time nobody does but if you
manage the position properly even though
when you do lose or you have a position
that goes into the money I'm going to
show you how to exactly manage it for
the least amount of loss now check this
out Nvidia right now is at6 $6 per share
I'm going to the options and what I'm
going to specifically show you is a call
Credit spread now this call Credit
spread is fantastic for scaling a
smaller portfolio I like to stick to my
bread and butter strategies of selling
put options and covered calls but if you
have a smaller portfolio or you simply
want to grow part of your portfolio to
you know generate more Alpha like for
example I have a large portfolio but I
still use small parts of my portfolio to
generate more money AK a a generating
alpha alpha is how much you beat the
market so for example if spy has a 10%
return in a year but on your strategy
you have a 25% return you have generated
a 15% Alpha because that's a 25 minus 10
so that's 15% Alpha that you've
generated I'm looking at my notes here
because I'm going to give you the
stepbystep plays guys on how to actually
open up a call Credit spread and manage
it because you need to understand from
the very beginning of when you opening
call Credit spread you need to have
excellent stock selection okay this is
the most important thing that you need
to understand stock selection I'm going
to be using Nvidia but this is an
example if you find a different stock
that's at its high meaning it's either
at the top of its Binger band it's at a
52 week high or if the RSI is very high
those are all indicators that a stock is
very expensive so when a stock is
expensive you want to use a call Credit
spread but the myth that I'm breaking in
this video which will help you make
$11,000 per week even if you have an
account that's $10,000 or in the low low
five figures is that a call Credit
spread can make money even if the stock
goes up a little bit if the stock goes
sideways that's fine and especially if
the stock goes down a call Credit spread
is going to be bringing you some income
in fact it can make 10% per month or
thereabouts as I'm about to get into
this but first i'm giving you the
mindset okay I want you guys to f focus
on reliable stocks so before I do this
on Nvidia I'm going to show you some
reliable stocks I would not do this on
spy or QQQ because they're typically
bullish I would use the call Credit
spread strategy on a stock that you
think is at the top of its range I'm
currently looking at some stocks that I
hold and I would not do this on paler
I'm a paler bull I would not really do
this on Amazon or many of the stocks
that I typically cover on this channel
because the call Credit spread strategy
you ideally want to pick a stock that's
towards the high end of its range I'm
going to take a look at meta although we
have a Green Day in the market if we
take a look at year to dat on meta this
is going to be a very good example guys
now check this out meta it has had a
triple top pattern okay so I'm going to
show you an example right now on meta
first because actually I'm more bullish
that the call Credit spread strategy
will work on meta whereas with Nvidia
I'm going to have to be a lot more
careful now guys listen when you look at
the implied volatility of an option if
it's high that's good because it gets
you more money all right and I'm going
to show you why meta is going to be a
very good play Nvidia is also but again
I'm going to have to be a lot more safe
so look meta it peaked right here at 527
and then in July meta again peaked at
539 all right now looking at meta it
peaked at 537 just you know a few weeks
ago in August now we're in September
2024 and for the next you know 2 weeks 4
weeks 6 8 weeks I really don't think
that meta is going to reach an all-time
high now that is based on technical
analysis I've done the research before
this and I can show you specifically
what I'm talking about by just pulling
up the chart on Yahoo finance all right
you don't actually have to be a genius
to read the chart and realize here that
this purple line that I drew right here
this is the top we had a very strong
double top in fact I would argue that we
had a triple top pattern on meta there
is very huge resistance at this level
and for that reason if I were to open up
a call Credit spread it'd be very easy
for me to bet that meta won't go above
520 however I'm going to do a very safe
call Credit spread on both meta and on
Nvidia right now because I want to be
safe and conservative I'm all about
consistent passive income I do not want
to you know put myself In Harm's Way and
potentially lose a call current spread
which is why I go so low on the delta so
check this out if I expand the 530 call
right here I'm going above and beyond
guys if you think 520 is safe go 525 or
530 go higher on a call Credit spread
because you want to be more safe with a
call Credit spread we are saying that we
don't think the stock will go this High
okay in this short of a time period This
is a 4day trade now look this is
actually very lucrative to do I'm going
to show you right now if I were to sell
the 530 okay and then I go ahead and buy
the 535 you can see right here that I'm
basically making $45 guys on $450 that's
about a 10% return in 4 days tell me how
you can't get rich and make passive
consistent income selling call Credit
spreads when the return is 10% so if you
understand what you're doing you're
going to collect really good income but
look this is a 4-day trade and I would
say this is a safe as it gets all right
if you go out longer you do have or you
do run the risk of more things happening
until expiration right so if I go to an
expiration here and let's say I go to
October I'm going to show you a very
interesting way to think about this
right here to make more money and
squeeze out more profits on a smaller
portfolio if I were to go to the 530
okay I sell the 530 and then I go ahead
and buy the 535 the return right here is
going to be
$170 now look check it out it's $170
because more stuff can happen from now
as I'm making this video until October
18th because more stuff can happen
you're going to be getting compensated a
greater amount of money since there's
more time and more risk you're always
getting paid in proportion to the risk
that you take guys you make more money
when you have higher risk so you need to
find balance you need to accurately look
at an option and find the correct
balance that suits your needs that's
what I do in my Discord community and
that's what I'm trying to teach you here
on YouTube on how to properly open a
position manage the position and close
the position okay so look for here I
would not do this I would not do this on
October 18 because October 18 there's a
lot more time so I would go higher all
right the Delta there was too high if I
go to 560 the Delta is still kind of
high so if you want to have a lot of
consistency you're going to want to go
out a little bit further in terms of the
strike price all right so let me go out
to five 70 Here and Now check it out the
Delta is4 that is going to be a lot
better of a Delta however I will also
point out some really interesting facts
here the implied volatility is 30% so
30% implied volatility here is pretty
medium all right Nvidia is going to be
higher when I go over the Nvidia example
the volume here is also very low but
luckily check out the bid and ask spread
the bid and ask spread is very tight
that's a good thing that means that
essentially we are going to get a good f
still here even though the volume is low
all right so here I'm going to go for
the 570 call Credit spread feel free to
copy I'm not a financial advisor but I
made literally $3.5 million in profits
probably around 3.6 million at this
point because every single month my
portfolio keeps going up and I've been
doing this for for a decade so I'm just
trying to teach you guys how this works
if you look at the maximum profit you
are going to make about $59 in your
risking 445 all right there is a way to
manage this position because you never
truly want to lose 445 $5 if you end up
losing the entire amount the entire
collateral you're going to have a hard
time actually breaking even on this
strategy so as soon as basically if meta
were to go to 570 per share or even
close you want to spot that and
basically close this position before
expiration and before it ideally hits
570 now where that perfectly happens is
a caseby casee basis is beyond this
video but to summarize it you do want to
close the option closer to 570 because
at that point the option will be at risk
so look guys before I go over the Nvidia
trade what I want to say is you want to
focus on reliable repeatable strategy a
reliable repeatable strategy is when you
can keep running a call Credit spread or
any strategy on the same stock uh week
by week month by month that's what I
focus on also what's good about this
strategy is it truly does create passive
income although I just showed you a
trade that was 4 days to expiration and
1 month to expiration you can still do
this every 2 weeks and up to six or even
eight weeks if you go further out of the
money as I'm about to show you on in
video that way you do get passive income
I would label this as fairly safe income
as well because it's actually a hedge in
your portfolio it's saying that you
don't think the stock is going to go up
to that strike price so you would not
want to do this on a very bullish stock
that you like I like Nvidia but look I
want to show you a short-term trade so
if I go to sell call option right I'm
going to go to an expiration let's say I
want to go shortterm I'm going to go for
September 20 right here this is a
short-term trade but if you're watching
this in the future just copy the same
thought process and the same logic and
just do this over and over again for a
stock where you see that it has
resistance now for NVIDIA I'll be honest
since it has pulled back a lot I'm
expecting a bit of a bullish move in the
short term however I'm going to show you
an interesting way where you can still
capitalize you can still go very out of
the money so let's go for 116 nope
that's too close because that Delta was
too high if I go to 120 that's an 11
Delta this is actually a really good way
to create income and hedge your position
cuz check this out this is going to be
lifechanging right if you have a lot of
Nvidia you hope that it goes up right a
call Credit spread will basically create
income and you'll end up profitable at
expiration as long as it doesn't go to
your strike price so check it out if I
sell a 120 call option all right I'm
collecting income if Nvidia goes to 110
I'm going to be still fine I'm still
collecting income if it goes to 115 and
you have an Nvidia position you make a
lot of money and you still get the
premium that you've collected for the
120 strike price if it goes to 120 you
need to close out this call Credit
spread of course but you have probably
made so much money on the long stock
that you have so this is a fantastic way
to create income and basically hedge
against the position that you have so
check it out if I go 120 and then I go
125 the return here is going to be
fairly small at $32 and I'm going to be
risking I'm putting in quotation I'll
explain to you in a second risking about
$460 $470 right this is about a 6%
return roughly maybe 6.5% return as I'm
doing the math in my head 6.5% return in
about 11 days so let's just call it 10
days 6% return that's 6% per day guys
you're creating 6% of income so that's a
lot of money right that is actually a
lot of money cuz on a $110,000 portfolio
this is going to add up this will really
add up now I'm probably going to bet
this does not happen cuz 120 is pretty
far away it's 11 Delta so you're just
going to get income but again if Nvidia
goes higher you're going to be making
money on the long shares that you have
most likely if you're investing in the
shares if you have a covered call that's
going to be beneficial there's so many
strategies here all the strategies that
you run a call card spread will help you
create more income in your portfolio so
I would say that I personally do this
all the time I'm trying to maximize my
income in my portfolio and you can make
as much as 10% or even more than 10%
safely on a five figure portfolio or a
six-figure portfolio so this is a
fantastic way to scale your income and
I'm looking at my notes here I would say
that I'm going to stick to between 12 to
15 Delta so you should stick between 12
to 15 Delta if you really want to get
the the income and the safety at the
same time now of course the majority of
my strategy and what I focus on in
Discord is just really helping folks
with five figures multiple five figures
and six figures scale to the next level
and ideally to a full-time income I'm
focusing on just 4% per month because
that's a lot more safe and conservative
I am a conservative safe investor so
with the call C spread strategy it's
fantastic but guys position sizing
please position sizing I beg you do not
put all of your money in smaller account
strategy even if you have a small
portfolio you should still focus on the
other strategies that I cover on this
channel like the poor man's covered call
guys I have a 4-Hour free course you
have to check it out because you need
balance you need position sizing you
can't just put all your money in one
basket because no one strategy is always
going to work so this at most I would
put in about 10% of my portfolio and I
would also copy what I just showed you
or I would just say that's what I'm
doing myself on meta on Nvidia and I can
show you uh another good stock where you
might want to do the strategy on U me
personally I'll be honest with you I'm
looking at Hershey's okay hsy why
because I was doing some research and I
think the chocolate industry they're
going to have higher costs cocoa and the
inputs are becoming more expensive as
well as more competition so if you look
at Mr Beast he has his febles now I'm
not going to make a comment if febles is
actually a better chocolate bar or not
but the marketing is very strong so I
think that is going to give Hershey's a
run for their money and I think
Hershey's is going to have a little bit
of a harder time with their profit
margins because there are more
competitors in the chocolate space for
that reason I would say that this could
be a really good call crit spread
opportunity for you to get into but
generally speaking I would use call CED
spreads on expensive tech companies I'm
just scrolling here I'm looking at the
stocks that are on my watch list that
could be good opportunities now you
could also do this on something no I
would say that coinbase has already
pulled back enough so I wouldn't do this
on coinbase but basically guys you can
make up to 10% per month doing the call
Credit spread strategy if you guys want
to watch more examples of me using
credit spreads for income check out this
video on the screen right now
تصفح المزيد من مقاطع الفيديو ذات الصلة
Credit Spread | ONLY RISK $50 (Beginners)
How To Sell Bear Call Spreads: Beginners options tutorial on how to make money when stocks drop
Palantir: Beware I’m more cautious.. do this.
This Is How You Can Profit From The Nvidia Stock Split
Buying Call Options Tutorial and Close For Profit
If I Could Only Trade ONE Strategy, It Would Be This (Options Retirement Strategy For Beginners)
5.0 / 5 (0 votes)