
Start Here
Platform

Tour
Bots 101How it worksLive demo
Tools
Automated tradingOptions backtestingWatchlist scannerPrivate community
Use cases
New investorsStock tradersActive tradersPassive investorsSwing tradersAlgorithmic traders

Templates
By trade type
Stock trading botsOptions trading bots
By strategy type
Bullish options strategiesNeutral options strategiesBearish options strategiesHedging strategies
By style
Active and high frequency botsEvent-based botsTrend trading botsMomentum trading botsStatistic and probability-based botsTechnical analysis botsEarnings strategy bots

Integrations

Pricing
Education

Courses
Overview
By experience
Beginner
What is an options contract?Stock trading vs. options tradingOptions contract specificsCall vs. put options basicsBuying options vs. selling optionsOptions profit and loss diagramsOptions pricing tablesOption moneyness (ITM, OTM, and ATM)Options pricing and the "Greeks"Options expiration and assignmentWhat's our "edge" trading options?Single vs. multi-leg options strategiesSmall account options strategies
Intermediate
Fearless, confident options tradingHistorical volatility vs. implied volatilityPredicting market movesTrade size and capital reservesPortfolio balance and beta weightingHow to choose the best options strategyHow far out to place trades?Strike price anchoring with probabilitiesTips on getting your trades filledAdvanced and contingent orders7 step options trade entry checklist
Advanced
Developing a daily trading routineHow to avoid "Black Swan" eventsAdjusting and hedging option tradesExiting options trades automaticallyOptions strategies we don't adjust (and why)Big picture adjustment strategyWhen to adjust or notAdjusting straddles and stranglesAdjusting credit spreads, iron condors, and calendarsSmarter stop-loss ordersBuilding a diversified options portfolioRolling options trades for duration and premiumOptions expiration week position checklistDealing with stock assignment and dividendsHow to free up trading margin and cash
By subject
Options basics
Why options vs. stocks?What is an options contract?Smart use of leverageOption strike priceOption premiumOption expirationOption contract multiplierProfit and loss diagramsLong call option explainedShort call option explainedLong put option explainedShort put option explainedATM, ITM, and OTM optionsCash vs. margin basicsHigh probability trading definedHow to buy a call optionHow to buy a put optionSingle-leg vs. multi-legWhat is the VIX?Is fundamental analysis dead?
Entering and exiting trades
Game of numbers7 step entry checklistStrong liquidity examplesPicking the next directionScanning for tradesOption pricing table basicsSetting up your trade tabPinning your probability of profitUsing delta for probabilitiesBuy to open vs sell to openBuy to close vs sell to closeMarket, limit, stop loss orders5 types of contingent ordersLimit ordersMarket ordersLimit on close ordersMarket on close ordersAdvanced contingent ordersTaking profits before expirationMechanics of rollingConsider future events
Options expiration
Options expiration explainedWhat is the Options Clearing Corporation (OCC)?Physical vs. cash settlement optionsAmerican vs. European style optionsWeekly options expirationWeekly expiration tags/codesOptions assignment processOptions exercise processTrading timeline (duration)
Bullish options strategies
Bull put spreadBull call spreadLong callShort putBull call backspreadPut broken wing butterflyCall calendar spreadPut diagonal spreadCustom naked putCovered callSynthetic long stock
Neutral options strategies
Short straddleLong straddleIron condorsShort strangleLong strangleIron butterflyUnbalanced iron condors
Bearish options strategies
Bear call spreadBear put spreadLong putShort callBear put backspreadCall broken wing butterflyPut calendar spreadCall diagonal spreadCustom naked callCovered putSynthetic short stock
Portfolio managmeent
No guaranteed tradesDon't do something, sit thereAccount size adjustmentsAvoiding stock market overloadStocks, indexes, & ETFsMonitoring positionsCreating automatic alertsIndividual stock betaPortfolio betaBeta weighting your portfolioUncorrelated industries/sectorsSystematic vs. unsystematic riskEfficient portfolio frontierLimiting undefined risk tradesEconomic calendarConcept of legging
Options pricing and volatility
How to find option price quotesUnderstanding the mathIV vs. IV percentileProbability of profit vs. probability of touchOption probability curveBid-ask spread definedIV expected vs. actual moveThe "Greeks"Fatal pricing errorsInverse ETFsOptions parity
Adjusting trades
#1 adjustment for any tradeWhen to adjust a tradeSingle options trade vs. overall portfolioLeveraging the analyze tabCall spread adjustmentsPut spread adjustmentsShort strangle adjustmentsIron condor adjustmentsShort straddle adjustmentsCalendar spread adjustmentsDebit spread adjustmentsButterfly adjustmentsUsing stop lossesDelta hedgingRolling positionsPairs hedging

Strategies
Long callLong putShort callShort putCovered callCovered putProtective putCollar strategyLEAPSBull call debit spreadBear call credit spreadBull put credit spreadBear put debit spreadLong straddleShort straddleLong strangleShort strangleCall calendar spreadPut calendar spreadIron condorReverse iron condorIron butterflyReverse iron butterflyCall butterflyPut butterflyStrapCall diagonal spreadPut diagonal spreadCall ratio spreadPut ratio spreadCall backspreadPut backspreadLong box spreadShort box spreadReversalStock repair

Topics
OverviewAsset allocationAutomated tradingBehavioral financeBrokersCandlestick patternsChart patternsDividendsEconomic indicatorsEquity investmentsExercise & assignmentFinancial analysisFinancial historyFinancial marketsFinancial modelingFinancial theoriesFundamental analysisFuturesInvestment accountsInvestment taxesInvestor biasesMarket holidaysMarket hoursMarket indexesMarket indicatorsMomentum tradingOptionsOptions pricingOptions settlementPortfolio managementRisk managementStocksStock marketTechnical analysisTechnical indicatorsTrading commissionsTrading platformsTrading psychologyTrend trading
Resources

Workshops

Podcast

Blog
Support

Help Center
Overview
Getting started
What is a bot?Creating a botAutomation typesAutomation editorBot dashboardBot positionsBot logTemplates and cloningKey conceptsSafeguards and limitsPower of botsBest practices
Bot automations
What is an automation?Scanner automationsMonitor automationsEvent automationsEditing automationsReusing automationsCopying automationsOrdering automationsUsing custom inputsBot level inputsAutomation statusesAutomations library
Bot actions
DecisionsOpen positionClose positionNotificationsLoop symbolsLoop positionsBot tagsPosition tags
Bot examples
Genesis 1.0 botGenesis 2.0 botGenesis 3.0 botTrend trading with stocks botPortfolio trend trading botTrend trading with options botMultiple moving averages botTechnical swing trading botTrend and momentum botWeekly credit spread botRecurring iron condors botThe "Honey Badger" botHybrid spreads botHigh IV rank iron condor bot
Decision recipes
Comparing underlying symbol priceEvaluating symbol typeComparing underlying symbol propertiesEvaluating underlying symbol performanceEvaluating underlying symbol standard deviationComparing underlying symbol price to an indicatorComparing multiple underlying symbol indicatorsEvaluating underlying symbol implied volatility rankEvaluating underlying symbol earnings reportingEvaluating underlying symbol price probabilityEvaluating underlying symbol probability within rangeEvaluating bot propertiesEvaluating bot available capital for opportunitiesComparing bot position count to position typeComparing bot position count to underlying symbolEvaluating bot position count to position type and underlying symbolEvaluating bot last position activityEvaluating bot last activity with underlying symbolComparing bot active orders statusComparing bot active orders status with underlying symbolEvaluating bot position availabilityEvaluating bot tagsEvaluating opportunity availabilityEvaluating opportunity return expectationsComparing opportunity attributesComparing opportunity leg attributesComparing opportunity bid-ask spreadEvaluating opportunity probabilitiesEvaluating position performanceComparing profit target to trailing valueComparing position time to expirationComparing position durationEvaluating position underlying symbolComparing position propertiesComparing position leg propertiesEvaluating position typeEvaluating position sideComparing underlying symbol price to position legEvaluating position tagsEvaluating underlying symbol indicator propertiesComparing multiple underlying symbol indicator propertiesEvaluating MACD technical indicatorComparing Bollinger Bands to symbol priceEvaluating stochastic technical indicatorComparing VIX propertiesEvaluating market time of the dayEvaluating days of the weekEvaluating bot switches
Position statement
Activity summaryPosition detailsTrade detailsOpened positionsClosed positionsCanceled positionsOverride positionsExpired positionsPosition historyManually open positionManually close positionImport position
Order pricing
SmartPricingFinal price settingsPosition summaryOrder detailsWorking ordersManual override
Bot templates
Creating new templatesUpdating existing templatesDeleting templatesSharing templatesUpdating shared templatesTemplate best practices
Cloning bots
Cloning existing botsCloning from templateCloning from shared template
Troubleshooting
Using bot logsTesting your botsNot enough capital warningDaily position limit warningTotal position limit warningPricing anomaly warningMissing or invalid input errorDaily symbol limit errorExcessive errors failsafeOverlapping strikes failsafePrice exceeds strike-difference errorOptions expiration protocolDuplicate orders errorOptions approval level errorBot event loopsStock splits and corporate actionsSupported browsersSupported countries
Community forum
Community guidelinesCrafting your introductionSending group messagesSending private messagesAttaching bot templatesReceiving bot templatesAttaching automationsReceiving automationsFollowing tradersPosting publiclyEditing posts and messagesSubscribed discussionsUsing bookmarks
Using backtester
Running a new backtestBacktesting results summaryModifying existing backtestsMy backtestsBacktesting research databaseTop backtestsBacktesting errors
Account settings
My profileTrading accountsConnecting to TDAmeritradeConnecting to TradeStationConnecting to TradierIncompatible accountsPassword managementSession timeoutTwo-step authentication
Technical docs
Infrastructure and securityAutomation structureAutomation behaviorData feedsOrder handlingTrade enforcementsBroker rejection errorsBot limitationsProfit and lossFair value pricingDecision propertiesDecision calculationsParameter selectionCalculating probabilityPlatform indicators

Contact
Send FeedbackReport IssueEmail Us
Option AlphaOption Alpha

LoginSignup
EducationCoursesTrade AdjustmentsCall Spread Adjustments

Trade Adjustments.
Lesson
5
of
16


#1 Adjustment for Any Trade
4:10


When to Adjust a Trade?
8:04


Single Options Trade vs. Overall Portfolio?
5:07


Leveraging the "Analyze" Tab
20:05


Call Spread Adjustments
7:02


Put Spread Adjustments
6:45


Strangle Adjustments
12:18


Iron Condor Adjustments
6:14


Straddle Adjustments
9:23


Calendar Adjustments
7:35


Debit Spread Adjustments
6:44


Butterfly Adjustments
7:45


Using Stop Losses
7:47


Delta Hedging
5:18


Rolling Positions
6:56


Pairs Hedging
6:49

Call Spread Adjustments

This the first call spread adjustment you should make to reduce your overall risk in the trade.
Kirk Du Plessis
May 16, 2022
•
7 min video





Making adjustments on a credit call spread starts with adding the additional put side to the trade should the stock continue to rally higher against your position. Our own trigger for making this adjustment is when the short call strike gets to a 0.30 delta. Adding a put spread below the market, if you keep the same number of contracts and width of strikes you'll reduce your overall risk and increase your credit in the trade which widens your break-even points.

Transcript

Today, we’re going to go over how you would make an adjustment to a call credit spread. After selling a call credit spread above the market, let’s assume that the underlying stock starts to rally higher towards your position.

This is where you inevitably end up starting to lose paper money in your trade as the stock rallies higher towards your strikes. The question is how should we adjust or hedge this trade.

For simplicity, let’s just assume that you sold a $1 wide spread for about $.20 which gives you about a $20 credit at a 15% probability of being on the money level, so about a 15 Delta if your broker platform doesn't calculate those probabilities.

What this means is that your initial trade had about an 85% chance of success, about a 15% chance of losing. It’s a high probability trade, but now the stock is starting to move against you.

What we'll do is we will look to adjust when the short strike reaches a 30 Delta. Remember, we entered this trade, to begin with at a 15 Delta and basically, our personal adjustment for this is if that Delta doubles.

If the risk of us losing money doubles or increases twice, then we'll look to make an adjustment to a credit call spread. Here's exactly what we'll do. We will take that credit call spread, and we will sell a corresponding put credit spread on the other side of the market for additional credit.

This is a little bit different than what most traders try to teach you in that you roll up that call side. We don’t suggest you do that because you roll up that call side, you’re banking a loss and closing out that initial position, plus you’re reestablishing the trade at a higher price and who's to say that the market can’t keep moving higher against that position.

You end up with compounding losses if you adjust that way. What we like to do is add the other side of the trade. You add the put credit spread to the other side, making sure that you match up both the width of the strikes (if your original spread was $1 wide, you want to do a $1 wide put spread) and the number of contracts that you traded, so that you have no additional risk in this trade.

In fact, that is the absolute truth. By making this adjustment, you have no additional risk in this trade, and you’re reducing risk or reducing your max overall loss by doing this.

Let’s look at an example here on our broker platform. We’re looking here at SPY. It’s currently closed today at just about 205. Let’s say that our initial trade was the March options.

We’ve sold the 214/215 credit call spread above the market, and you can see we took in about a $.20 credit to do that and that probability of us losing or probability of being in the money is about 15% or about a 15 Delta. That means this is initially about an 85% chance of success trade, a very high probability trade.

We go to our risk profile here, and you can see with the market trading right here about 205, this is that dotted line right down the middle of the graph, you can see that our strike prices are all the way out here which means that we don't lose money until about 214.80 or so.

That’s exactly where of 214.20 is where we start to lose money. That’s our breakeven point. After that, we ended up losing a couple of hundred dollars because in this case, we’re doing three different spreads.

We take in a credit of about $60. Right now without any adjustments, we have a loss potentially if it moves all the way against us of about $240. What’s going to happen is that we’re going to monitor…

There’s ways that you can monitor and create alerts for this individual strike price. We have other tutorials inside of our membership area at optionalpha.com that helps you understand how to create alerts and monitor these positions without watching them in real-time.

But we’re going to watch and wait and see if this Delta of this short strike, this 214 increases to about 30. When it gets up to a 30 Delta or a.3, it‘s going to double, and that means that our probability of losing doubles as well.

What we're going to look to do is then go down below the market and sell a corresponding put spread at the original probability that we had on the call side, so in that case, about a 15% probability of being in the money or about a 15 Delta.

In this case, right now, we’ll just assume that that spread is the 187/186 and we’ll just go ahead and sell that vertical credit spread as well. In this case, you take in another $8 on this trade.

You probably take in a little bit higher than that, but we’ll just use this for the sake of this argument. But you take in whatever credit that is on that side of the trade and that credit will then create an iron condor that helps reduce the risk of your position.

Now you can see as the market starts to move higher, we’ve now created an iron condor, we’re increasing our risk on the back end of the trade to help offset some risk on the top end of our trade.

What this has done is this has moved up our max loss on this side of the trade to only about $216. It’s reduced our loss a little bit. The more credit that you take in on this roll, the less and less that loss is going to become.

But you’re not taking any more risk to do this. By doing this, you’re reducing your loss 100%. You take in more credit which moves out your breakeven points even further.

The closer that you do roll this strike up… Let’s just say you roll it up to 191/190 and we go close to the market. You can see that the closer we roll this side, we take in, even more, credit and that helps just reduce our loss; it moves up our loss on both sides of the market.

Of course, there’s always a risk that you reduce too far too fast, so you’ll have to play around with that and see what timeframe works best for you, always taking to account how much implied volatility there is and how much time is left in the options expiration.

We obviously don’t like to make these adjustments the day before expiration. We like to be a little bit proactive in how we adjust trades. But that’s the whole thought process and methodology of adjusting that credit call spread.

This creates that new iron condor position helps reduce loss, overall loss and widens your breakeven points on the trade by taking in that additional credit.

Remember, if you do this and you match up the number of contracts that you’re trading on each side and the width of the spreads, you take no additional risk to do this trade which is why it’s such a great adjustment.

As always, I hope you guys enjoy these videos. If you have any comments or questions, please add them right below on the lesson page. Until next time, happy trading!

The transcript is not available yet. Please check back soon.

Options
Risk Management
Adjustments
Short Call Spread
Bear Call Spread

No-code, fully automated trading for stocks and options.

HomeAboutLegalStatusContact
©2022 Option Alpha. All Rights Reserved. Patent Pending USSN 63/118,547