How It Works
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How To Trade Alfred
Meet Alfred, an experienced options algorithm which utilizes both put and call vertical spreads to capitalize on range estimates of the S&P 500 Index (SPX). Savvy traders utilize these strategies to manage risk and potentially profit in financial markets. In this tutorial, we’ll explore what selling a put vertical spread and a call vertical spread entail, how they work, and the ways they can either succeed or fail.
Alfred attempts to trade every trading day, however, depending on market conditions, Alfred may decide a trade is not worth the risk and sit out that day. It’s better to be cautious and live to trade another day! On days when you decide to enter a trade, it is strongly suggested to have the ability to monitor the trade throughout the day. Markets move fast these days, and you don’t want to be in a situation where your position moves against you and you have to exit at a big loss. Even with frequent monitoring, there will be days when Alfred exits without a profit. Please trade cautiously and at your own risk.
Please note that the information provided is for educational purposes only. Options trading involves inherent risks, and all trading decisions should be made with careful consideration of your financial situation and risk tolerance. Trade at your own risk, and it is strongly recommended to consult with a qualified financial advisor or professional before engaging in any options trading activities.
Selling a Put Vertical Spread
Select Strike Prices
You begin by selecting two put options with different strike prices. The lower strike is the "long put," and the higher strike is the "short put."
Sell the Short Put
You sell the short put option, obligating you to buy the stock at the strike price if the stock's price falls below that level by expiration.
Buy the Long Put
Simultaneously, you buy the long put option at the lower strike price. This limits your potential losses as it gives you the right to sell the stock at this strike price if the stock price declines significantly.
Net Credit
You receive a credit upfront when selling the vertical put spread, which is the maximum profit you can achieve with this strategy.
Success of Selling a Put Vertical Spread
Selling a Call Vertical Spread
Select Strike Prices
Choose two call options with different strike prices. The lower strike is the "short call," and the higher strike is the "long call."
Sell the Short Call
You sell the short call option, obligating you to sell the stock at the strike price if the stock's price rises above that level by expiration.
Buy the Long Call
Simultaneously, you buy the long call option at the higher strike price, limiting your potential losses as it gives you the right to buy the stock at this strike price if the stock price rises significantly.
Net Credit
You receive a credit upfront when selling the short call, which is your maximum profit potential.
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Success of Selling a Call Vertical Spread
Failure of Selling a Put or Call Vertical Spread
If the stock price surges significantly below the short put or above the short call, you could face losses, limited by the long put or call option. Transaction costs and bid-ask spread can reduce your profits.
Alfred's Strategy
CONCLUSION
