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If your short leg expires OTM, you will keep the total net credit. Your long put will also expire worthless, but you were only using that leg to hedge your position. That leg is not there to make you profit.
The MAIN reason you would trade this as opposed to a bull call spread is to capitalize on contracting implied volatility. In other words, you want to enter this trade when the underlying stock is in a high IV environment. Since options are more expensive in high IV environments, you can sell these for a higher price. Then, as IV reverts to the mean, you will gain premium as the options lose value. You are getting your value from the put you sold, the put you buy is only there to counteract the LARGE risk associated with selling a naked put (as the stock price goes down, you will gain premium on your long leg. This leg is just a hedge for your short leg, which is the money maker of this trade).
You will need to select “credit spread” on optionsprofitcalculator.com in order to toy around with this strategy.
I’m going to release as many videos as as I can with my schedule, but I promise that there will ALWAYS be one released every Saturday. Thanks for your support, ya’ll.
A detailed explanation of a bullish/neutral option strategy. This strategy is also a vertical spread, and involves collecting premium over time and as the underlying stock price pushes upwards.
You sell this spread to enter the trade, then buy to close. It involves two legs, both puts, one of which you write. The other, you buy. The put you buy will always have a lower strike than the put you sell. You will receive a net credit to your account for this trade.
Please let me know if I have made any mistakes or if you would like any other specific trading topics covered.
