Make Money When Stocks Crash (Call Credit Spreads for Beginners)

Summary

This 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

00:00

💹 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.

05:03

📈 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.

10:04

🔄 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.

15:06

🍫 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.

Keywords

💡Call Credit Spread

A call credit spread is an options trading strategy where an investor sells an out-of-the-money call option and simultaneously buys a call option with a higher strike price, both with the same expiration date. This strategy is used when the investor expects the underlying stock's price to remain relatively stable or increase only slightly. In the video, the speaker uses Nvidia and Meta as examples to demonstrate how to implement this strategy for income generation.

💡Delta

Delta in options trading represents the sensitivity of an option's price to a $1 change in the price of the underlying asset. A lower delta, such as 12 to 15 as mentioned in the video, indicates a lower probability that the option will end up in the money. The speaker emphasizes using a low delta for a safer call credit spread strategy to ensure a higher chance of success.

💡Bullish

Being bullish means having a positive outlook on the market or a particular stock, expecting its price to rise. The video speaker, despite using a strategy that might be considered bearish, is actually bullish on Nvidia and expects its price to increase. This creates an interesting context where a typically bearish strategy is applied with a bullish outlook.

💡Implied Volatility

Implied volatility is a measure of an option's expected movement in price and is used to gauge the market's expectation of the stock's movement. The video mentions that high implied volatility is advantageous for options traders as it can result in higher premiums. The speaker uses this concept to explain why certain stocks are good candidates for a call credit spread.

💡Alpha

Alpha in finance refers to the excess return of an investment relative to a benchmark index. In the context of the video, the speaker talks about generating alpha by using options strategies like the call credit spread to outperform the market. An example given is beating the market by 15% if the strategy yields a 25% return while the market only has a 10% return.

💡Position Sizing

Position sizing is the process of determining the amount of capital to invest in a particular trade. The video speaker advises against putting all money into one strategy, especially for those with smaller portfolios, and emphasizes the importance of diversification and managing risk through appropriate position sizing.

💡Passive Income

Passive income refers to earnings that come with little to no effort after an initial setup. The speaker describes the call credit spread as a strategy to generate passive income, particularly appealing for those looking to supplement their earnings with minimal ongoing effort, as exemplified by the potential to make $1,000 per week.

💡Resistance Level

In technical analysis, a resistance level is a price level at which an asset's price has stopped rising in the past, often leading to a reversal or pause in the upward movement. The video uses the term in relation to Meta's stock price, suggesting that the stock has formed a triple top pattern, indicating a strong resistance level that could be exploited with a call credit spread.

💡Bid-Ask Spread

The bid-ask spread is the difference between the highest price a buyer is willing to pay for a security (bid) and the lowest price a seller is willing to accept (ask). A tight bid-ask spread, as mentioned in the video, is favorable for traders as it indicates liquidity and the potential for a better fill price when executing trades.

💡Portfolio Scaling

Portfolio scaling refers to the process of growing the size of an investment portfolio, often through strategic trading and investment. In the video, the speaker discusses using the call credit spread strategy to scale a smaller portfolio, implying that this strategy can help investors grow their capital over time.

💡Consistent Passive Income

Consistent passive income is a steady stream of earnings that requires little to no ongoing effort. The video speaker highlights the appeal of the call credit spread for generating this type of income, emphasizing the strategy's potential for reliable, recurring earnings for investors.

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