HOW TO OPEN A VERTICAL SPREAD ORDER

STEP BY STEP TO OPEN A BULL CALL VERTICAL DEBIT SPREAD

 

HOMEWORK:

Let’s try using research in your TDAmeritrade account
to find a great underlying stock.

http://www.TDAmeritrade.com

Example: BULL CALL DEBIT SPREAD

 

Starbucks has opened upscale coffee cafes, “Reserve Café”.
You believe Starbucks stock will go up and want to
place an order for a Bull Call Spread option.

1. Open TDAmeritrade account to do your research.
2. Insert SBUX in “search”(upper right corner)
3. Fill-in-the-blanks on Bull Call Strategy Template.
4. The price of Starbucks is $73.96.

5. Open SBUX Option Chain in TDAmeritrade.

6. Select Expiration Date at 50 – 120 days away, and
with the largest Open Interest (i.e. June 21, 2019)

7. Select Bid/Sell CALL option column
A. In-the-Money
B. BID/SELL strike price @ ONE notch BELOW
stock price of $76.13 = $72.50 (premium of $3.70)

8. Select Ask/Buy CALL option column
A. In-the-money.
B. ASK/BUY strike price @ ONE notch BELOW $72.50
Bid/Sell strike price = $70.00, Premium – $5.30

9. How much premium do you have to pay?
($5.30 less $3.70 = $1.60 X 100 shares = $160.00)

10. Summary:
1. You are Buying(Ask) a Call @ $5.30 Ask premium price
2. “Financing” it by Selling (Bid) of $3.70 Bid premium price
3. PLUS paying $1.60 of your own money upfront (a Debit premium)

 

HOMEWORK:

You are ready to open your TastyWorks account on your
Desktop and place the Starbucks
Vertical Debit Spread Order.

http://www.TastyWorks.com

 

 

 

#1. Open TastyWorks Desktop trading platform.

#2. Insert SBUX stock symbol – ENTER!

#3. Click on “Strategies” (drop down menu)
A. Select “Long”
B. Select “Call” – GO!
C. Select “Vertical” = “Long Call Vertical”

#4. Click on “Table”

#5. Click on “Expirations” plus or minus key
to find expiration date option chain you want.

 

#6. “Order” On the lower left is a summary
A. Insert number of contracts
(remember: one contract is 100 shares)
B. Let’s order 2 SBUX contracts.

#7.Summary:

“Buy/Open – 2 – Jun 15 – 134d – 70 C – 5.30”
“Sell/Bid – 2 – Jun 15 – 134d – 72.50 – C – 3.70”

#8. Lower, middle, is Premium (the amount you have to pay)
This amount will be a MID price premium of $1.72
(computer program calculation – your calculation is $1.60)
I usually accept the MID price.

#9. Click “Review and Send”

#10 Order “type” will be : “Net Debit $1.72

#11 “TIF” – Time In Force: always select “DAY”.

#12. BEFORE “SEND” ! Write down information shown in
“Review and Send” on the following form:
(Info will disappear when you
click Send)

OPEN: Date:_________Expire:_________
Ask/Buy $______@$______
Bid/Sell$______@ $______
Equals $____
Mid$_____
___Contracts
Max Profit$_______
Max Loss$_______
Type: Net Debit____TIF: DAY Est.Cost: Debit $______

 

13. If everything looks okay: SEND

14. You have a “Working Order” (W), pending the Opening Bell
next day of the Options Market.

15. If order goes through, it will have a “Filled” (F) notation

 

Confirmation of “Filled” order:
A. Open TastyWorks/Home
B. My Account — Transactions –Print.

 

 

Please scroll way down to: ” How to Calculate Vertical
Spread Profit and Loss.”