TDD Options — Basic Option Tutorial

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Selling a vertical put spread involves the sale of a higher strike put and a purchase of a lower strike put within the same contract month. Since the higher strike put should always be more than the lower strike put should always be more than the lower strike put the seller receives premium. It is a bullish directional strategy with limited risk/limited reward. This reward. This spread has nearly the identical risk/reward characteristics as buying a vertical call spread. The price of the same strike call and put spread will combine to equal the price difference between the strike prices.

Breakeven point futures price = higher strike.
Maximum loss = difference between strike prices minus premium received.
Maximum profit = premium received.

In The Money: Higher strike put greater then futures price.
At The Money: Higher strike put at or near futures price.
Out Of The Money: Higher strike put is less than futures price.

Because there is both a purchase and sale of an option, characteristics may change as the futures price moves. If the put spread is ATM or OTM

Delta is Positive. Higher prices help.
Vega is negative. Higher implied volatility hurts
Theta is negative. The passage of time hurts.

If the call spread is deep ITM

Delta is always Positive.
Vega maybe positive. Higher implied volatility helps
Theta maybe negative. The passage of time hurts.

sell put, tutorial