Thread by @compudex

A thread about options spreads : Before I take u there, Part 1 : when you buy option, Theta (Time) is against u, Vega/Delta/Gamma are with u. Simple language, if you're right on directional, option buying gives u profit but slow on direction or no momentum, u lose time value.1/n

2/n Vega can also be against u, if u buy at high IV and then iv falls down. Read about Volatility thread for details. So buying options has low winning Probability (Delta is winning Probability, already explained in a thread). Lower the delta, Low winnin Probability, high RR.

3/n Less known Truth about Vega : Vega can only be hedged by another option.

Now another leg, if u just sell option, u have Theta on your side but Gamma and Delta on your opposite. VEGA on your side partly if shorted at high IV, because IV falls down when news/event's gone.

4/n Short Option has virtuality unlimited risk, as profit is limited to premium but Delta/Gamma/Vega can move against u unlimited or undefined.

So now spread comes in picture. To minimize option buying cost, Or to hedge Unlimited risk on option selling side. You combine both.

5/n, Final part : You buy ATM CE at 20rs and sell 1 strike away OTM CE to partly fund your buying. That's called Debit Bull Spread. Ignore names, it's just a bull spread. You're bullish, so u bought ce, you're not foolish, so u sold another call to receive partial premium back.

6/n same trade with PE, ur bullish (or not BEARISH, but sideway/bullish), so u sold ATM PE, taking unlimited risk. Then u bought slightly OTM put to protect ur risk on downside. So it's PE Bull credit Spread. You're selling premium is high then buying premium as Buying is OTM.

7/n not to confuse simple thread, I will not write about another two spread, named as Put Bearish Spread, Call Bearish spread. You can Google and check image. All those spread are 50/50 probabilities with almost 1:1 or little more RR. If your view is right directionally then

8/n Winning Probability increases, if your TA system gives entry time rightly, then Reward is incredible and u can do better strategy than spreads. Spreads are limited risk and limited rewards but directional view. Sideways is also a view.

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Views are welcome, On a lighter note, retweet for maximum reach are harmful to seminars on options :)