In this lesson, I want to show you how to trade a Long Call Vertical in tastyworks. We’re looking at the chart of SPY.
Let’s say your assumption was that you thought SPY was going to continue higher. If you were looking for a bullish trade in anticipation of higher prices, you could look at doing a Long Call Vertical Spread.
The Trade Tab
It’s easy on the tastyworks platform! Just click on the “Trade” tab. Make sure you’re in “Table” mode, and what you’ll see, is the option chains populate. We like to trade between 30-60 days left to expiration. You can see the monthly options are bolded in white. The weekly and quarterly options are in grey. We stick with the monthlies and between 30-60 days left to expiration.
If we open up that option chain, you’ll see all the different strikes available.
We’re looking to buy a Call Vertical Spread. The calls are always on the left, and we want to start with the options that are slightly in the money.
You can see the orange line running horizontally through the strikes. It’s labeled with a little “ITM” with an arrow pointing up. That means all the strikes above that line are in the money. All the strikes below that line are out of the money.
When we set these up, we like to start a little bit in the money, and then buy the options a little bit out of the money.
To do that, you can just piece it together by clicking on either the “Bid” or the “Ask”.
So the first thing we’re going to do, is choose the strike that’s slightly in the money. Let’s choose the 274 for this example. We want to buy that one. We’re going to click on the “Ask”, and that’s going to populate a highlighted green box labeled “B1”. You know it’s a buy, if it’s highlighted green.
Then, we’re going to sell the option that’s slightly out of the money. Let’s do five points wide, which would bring us to the 279 strike. Then we can sell that one. You know it’s a sell, because it’s labeled “S1” and highlighted in red. So, we’re buying the in the money, and we’re selling the out of the money.
If you look toward the bottom of the platform, you’ll see all of your statistics.
You can see POP, which is probability of profit if you hold the trade all the way to expiration. It’s about a 50-50 bet, 49% if you manage it at 50%.
The P5O, or the probability of making 50%, is up to 63%.
You see the delta is positive. Because we know this is a bullish position, we want the stock to go up, so that’s going to be a positive delta number.
You can see the theta, the max profit, and the max loss for this trade.
If you’re ok with everything you see, and you feel like you know everything there is to know about the trade, you can hit “Review & Send” and shoot that off to your broker.
The Strategy Dropdown
I want to show you one other way to set up this Long Call Vertical Spread on the tastyworks platform.
Go ahead and clear off your recent position clicking the little eraser in the bottom right-hand corner of the platform.
Navigate to the “Strategy dropdown” menu at the top of the platform. You can click the first box, and it will toggle to “Long”. The second box will toggle from “Put” to “Call”, so make sure “Call” is selected. Then, make sure “Vertical” is selected from the dropdown.
When you finish clicking on that, it automatically puts the strikes down on your trade tab.
It defaulted to slightly out of the money, the next out of the money strike. Those aren’t the strikes we want for this example. All you have to do is click and drag your B1 up to the 274 strike. Then, click on S1 and you can drag it down to the 279 strike where we wanted it originally.
You can see all the statistics line up for exactly how we had it before.
The Curve Tab
You can just review and send that, or what I like to do first, just for double-confirmation, is go over to the “Curve” tab. Make sure you’ve clicked on the “Analysis” tab as well. That’ll bring up the visual representation of the trade. The green portion represents when you’re making money. The red portion represents when you’re losing money on the trade. You can see as you’re moving your cursor over the graph, a flag displayed up at the top, gives you the P&L at expiration and the P&L Theo. The P&L Theo is where the P&L is on that profit line. You can see, as you move your cursor, how the P&L and the P&L Theo change from negative to positive, and from positive to negative.
If you decide, “Okay, I don’t necessarily want these strikes. I want to move these around a little bit”, you can just click and drag the tiles. You can widen the strikes. You can make them a little bit more narrow. You can do whatever you want.
You can check the statistics down below as they change your probability of profit, probability of making 50%, your max profit, and max loss.
You can see the same information up on the flag as you move your cursor around.
By using the “Curve” and “Analysis” tabs, you can give yourself an idea of where the breakeven point is, where you start to lose money, where you start to make money, etc.
Let’s Get Theoretical
The other thing you can do is look at different theoretical values. You can do this by popping out the little window located on the top right of the platform.
You can click the arrows under “Evaluate At Date” to see exactly what happens as you move through time. You can adjust the volatility, so you can imply the volatility up and down to see how that affects your profit on the trade.
You can do pretty much anything you want. It’s a great tool and gives you this visual representation, which I’m a big fan of. Once you’re ready to go, just click “Review & Send”, to send it into the broker to get filled.
I hope that was helpful in showing you how to trade a Long Call Vertical Spread on the tastyworks platform!
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