Stock Market Logic Series #7Options Spreads strategy, let us talk about it.
If you want to buy high-probability spreads, there are specific places where you have the advantage.
And, there are other specific places where it is just pure gambling.
And, we don't gamble, EVER.
We take calculated risks, where the probability of success is much higher than the probability of loss.
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In spread options, what matters the most is where the price will be at the expiration date.
WHY?
Because your profit can only be realized near the expiration date unless the price moves dramatically into your favor and far away from the spread strikes.
So, if what matters is where the price is at the expiration date, you want that in this future date, the price of the stock to be away from it, with HIGH PROBABILITY.
As you can see from the drawing on the chart,
the blue channel signifies the probability area of where the price should be in the future.
So if in the future, you are in the probable zone, as seen in the RED spreads, at the expiration date, the price could be below or above your strikes, and thus be successful or not successful, so your odds are more 50-50.
since the price can just stall there, and oscillate in this area, since it is the probable area where the price should be.
But if you look carefully at historical data, you can see that in the GREEN (MONEY ZONES), the price gets immediately rejected...
WITH THE HELP OF T-I-M-E
And when you buy spreads, you want TIME to be on your side...
So now you can easily see... how to make TIME which is a HUGE factor in spreads, on your side!
The trend is your friend... IF... you let it TIME to help you...
When you use options, and trading options in general you need to know which strategy fits which scenario, and where your HIGH probability trade waiting for you.
Just in case you don't know what options spreads are...
In simple words...
You choose 2 prices of the stock (aka strikes):
------$100
------$90
and you speculate that
if the price in a month will be above $100, you profit 1 point.
and if the price in a month will be below $90, you lose 1 point.
So it is a 1:1 risk-to-reward strategy.
So your advantage comes from knowing where are the pivot points.
But not all pivot points have the same advantage...
As I just showed you in this post...
