Up next in 10
In today’s video we’ll learn how to trade spreads on the Fidelity Active Trader Pro platform. We'll be focusing on long and short vertical spreads, iron condors, and butterfly spreads.
Timestamps
0:00 Intro
0:21 Option Trader Layout
1:13 Option Chain Explained
6:33 Long Vertical Spreads
13:20 Short Vertical Spreads
14:45 Iron Condors
17:41 Butterfly Spread
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0:00
Welcome to the channel everyone. In today's video we're going to learn how to trade spreads on the Fidelity Active Trader Pro platform
0:07
Now we're going to be covering a bunch of information in this video, but I'm going to be specifically focusing on long and short vertical spreads, iron condors, and butterfly spreads
0:16
So if you guys do need to jump ahead to one of those strategies specifically, be sure to check out those timestamps down below
0:22
Now, jumping right into the tutorial itself, at the moment you can see here that I currently have the pre-made Option Trader layout that Fidelity actually makes for us
0:30
So all of you guys should be able to access this exact same layout if you guys want to use it, simply by coming up here to the Layouts tab in the upper right-hand corner
0:38
From there, once you select it, you can actually see all of the layouts that I've made for myself right up here at the top, but then more importantly, the one I'm currently using is the Option Trader default layout
0:48
Now, of course, you guys could always come down here and select new layout if you guys wanted to make your own layout for yourselves with your own tools, your own customization
0:55
But in my case, I'm going to be using the option trader layout. Now, looking at the layout itself over here on the left hand side, you can actually see a nice little option chain
1:04
Just to the right of that, we can actually see a nice little chart of the actual stock that we're looking at
1:08
And then right below that, we can see the basic option statistics for today
1:13
Now coming up here to the option chain, let's first go over what we're actually looking at here
1:17
and then how you guys can customize this thing a bit. So to begin with, looking up here at the very top of the option chain
1:22
we can actually see what stock we're about to trade. In this case, we're looking at Facebook FB up there
1:27
Right below that, we can see what Facebook last traded for today. Looks like $188.07 a share
1:33
Just to the right of that, we can also see that it was down $12.35 today
1:37
which was a 6.16% move. Looking a little bit further to the right, we can also see how many shares were traded today
1:43
Looks like just shy of 50 million shares. To the right of that, we can also see the historical volatility and the implied volatility
1:50
So right there, 47% and 70% respectively. Now finally, the very last thing on that line is the call to put ratio
1:57
Now for those of you unfamiliar with call to put ratio, that is simply how many calls were traded today versus puts traded today
2:03
It's also important to keep in mind that if we actually hover our mouse over that, it'll actually tell us the exact call to put ratio for the volume and the open interest
2:11
in like a little pop-up window down below. Now, besides that very top line, right below that
2:16
we can actually see a bunch of little drop-down menus. Like right here, it says calls and puts, 20 strikes, all volume and open interest
2:23
and then a few other icons just to the right of that. Now, all of those are basically just filters
2:27
ways to filter out the strikes that you're seeing, the expirations that you're seeing
2:31
basically just filtering out the results or the strikes that you're actually viewing down below
2:36
Now for the time being we're actually going to skip over that and look at the line right below that where we can actually see all of the expirations that are available for Facebook
2:44
So right there we can see April 22nd, April 29th, May 6th and if we were to scroll over to the right
2:50
we can see it goes out quite a bit further in time all the way to it looks like January 19th of 2024
2:57
Now going back to the current date for a second, if we go all the way back to the April expirations
3:02
looking here you can see the only one currently highlighted is the May 6th expiration
3:06
Now since May 6th is the only expiration that's highlighted, it's the only option chain that's
3:11
open down here below. So down here we can actually see May 6th and it expires in 15 days and we can
3:16
actually see all the strikes down here. Now if we wanted to see the option chain for some of these
3:20
other expirations, all we would have to do is click on the expiration we want to see. So in my case
3:25
let's say I wanted to look at the April 22nd as well as the April 29th. I can now see that both of
3:31
them have been opened up down below, and if I scroll down a little bit, I can also see the May
3:35
6th expiration. Now if I wanted to get rid of that, I could of course come back up here and just
3:39
unselect those, and now I'm only looking at the May 6th expiration again. Another thing I'll also
3:45
mention is that you'll also see that some of these expirations have a little parentheses and a W
3:49
inside of it, and that simply is telling us that those are weekly options expirations. Looking to
3:54
the right of that, if we were to look at the expirations like May 20th, you'll notice that those don't have a little W telling us that those are the standard monthly contracts. Now in reality
4:02
that doesn't really matter. There's basically no difference between the weekly expirations and the
4:07
standard monthlies, but it's something to keep in mind. Now finally, the very last thing I'll mention
4:11
on this line is where we can see a little E in a blue square. That is simply telling us that there
4:16
is an earnings announcement sometime between April 22nd and April 29th. Now you may have noticed a
4:21
second ago that if I hover my mouse over it, it'll actually tell me what date it's going to be. In this
4:25
case, it looks like April 27th of 2022. Now moving on from that, let's actually look down below here
4:31
Right here, we can actually see the expiration date we currently have selected, May 6th, and that
4:35
expires in 15 days from now. Looking below there in the center column, we can actually see all of
4:40
the strikes that are available. So right here, we can see the 160 strike, the 165, going all the way
4:45
down to the 215 strike. Now at the moment, I currently have 20 strikes visible, but if you guys
4:50
want to filter the results of the number of strikes that you're seeing, all you would have to do is
4:54
come up here to the very top and select this little toggle that says 20 strikes As soon as we click on that we can then refine it down if we wanted to see fewer strikes or expand it to view all available strikes In my case for right now let just go ahead and click on all strikes and you can see that this list is
5:09
quite a bit longer. It now goes from the $100 strike all the way down to looks like $390. Now
5:15
for me personally that is way too many strikes currently visible so let's go ahead and refine
5:19
this and in my case I'm just going to refine it down to 10 available strikes. Now looking down here
5:24
below, we can also see that all of the call options are on the left-hand side, whereas all of the put
5:29
options are on the right-hand side. You may also notice that all of the in-the-money options have
5:33
kind of like a light gray background, whereas all of the out-of-the-money options have a black
5:37
background. Finally, the last thing I'll mention about the option chain itself is if you look up
5:42
here at the very top, you'll notice that there are a bunch of informational columns up here, like bid
5:46
and ask, and then delta and theta. Now, if you guys ever want to add additional columns or delete
5:51
columns from this list, all you have to do is come up here and right-click on any of these columns
5:56
From there, you then have the ability to either remove the column or add an additional column
6:01
Now, in my case, let's say I wanted to add an additional column. I'm going to come down here to add a column, and looking over here on the right, let's say I also wanted to add the volume
6:09
for the day. So I'm going to go ahead and click on volume right here. Now, as soon as I do that
6:13
you can see the volume column gets added for both the call side as well as the put side
6:17
And then later down the line, if I ever want to get rid of that, I would simply right-click on the
6:21
column itself and say remove column to get rid of it. But now that we've broken down the option
6:26
chain itself and hopefully you guys have an idea of how to customize this thing a little bit
6:30
let's next go over how you guys would create spreads inside of this platform. Now the very
6:34
first spreads we're going to be going over in today's video are going to be long vertical call
6:39
and put spreads. Now I will say there are a couple different methods of doing this but the very first
6:44
method I'm going to show you is my preferred way and that's going to be lagging into each of them
6:47
So jumping right into it, let's say we were bullish on Facebook in this first example and we thought Facebook was going up
6:54
Now looking over here at the available strike prices, I'm going to begin with buying the $1.90 call
6:58
So looking right here at the $1.90 strike, if I come over here to the current bid and asking price
7:03
if I want to buy an option, I would simply click on the asking price to buy. So right here, $13.20
7:09
Now as soon as I clicked on that, you'll actually see the order gets added to the very bottom of our screen right there
7:14
So right there it says I want to buy to open one of the May 6th 190 calls and as of right now it says it's going to cost me roughly $13.20
7:24
Now in my case that's not all I want to do. I actually want to sell another call along with this to actually reduce the overall cost of this trade
7:31
So looking back up here towards the top I'm actually going to sell a $5 wide credit spread
7:36
So looking right here at the 195 strike I'm going to be selling that one
7:40
Now in order to sell an option in this platform we simply need to click on the bid price
7:43
So looking over here on the left, I can see the current bid is $10.55
7:48
Now, as soon as I click on that, you'll see it gets added to the order ticket down below
7:52
So right here, it says I still want to buy to open one of the May 6th 190 calls
7:57
But now along with that, I'm going to be selling one of the 195 calls
8:01
Looking over here towards the right, we can now see that the net debit or the overall cost for this trade is only going to be $2.65 rather than the $13.20 it was going to be before
8:10
Now, of course, you guys come in here and change all of these things. Like, let's say you didn't want to buy it for $265
8:16
You only wanted to pay $250 for it. We could, of course, just highlight that and type in $250 in there
8:21
We could also come down here to the time and force box where it currently says day
8:25
And we could always flip that over to a good until canceled order if we wanted to
8:29
Basically saying if the order ticket does not fill today, go ahead and try it again tomorrow
8:33
Doesn't happen tomorrow. Try again the next day and the next day and so on. Now, besides that, you guys could also come over here to the actual strikes themselves and change this if you needed to
8:41
Like, let's say you change your mind and you wanted to make this a 10 point widespread. We can come down here to the 195 strike
8:47
Go ahead and click on that and then change it over from 195 to 200
8:52
You can then see over here that the net debit automatically changed to the current price, $4.55
8:58
which is obviously significantly more because we did widen out that spread. Now, besides that, if you guys wanted to trade more contracts
9:04
or maybe you wanted to put on five of these spreads rather than one, we would simply come over here to the quantity box
9:10
let's say type in five, and hit enter on the keyboard. We would then just come down here to the one in this bottom box
9:15
and also flip that over to five, because if you want this to be a vertical spread
9:19
you need to be doing simultaneous contracts or equal number of contracts on both legs
9:24
Now, finally, if you were actually happy with this order ticket and you actually wanted to place this long vertical call spread
9:29
you would simply come down to the preview button in the lower right hand corner, hit it, and then
9:34
send the order if you actually want to place it. Now it is important to mention that both of these
9:38
legs have to fill simultaneously. So if you're doing this trade, both of them will fill at the
9:43
exact same time. It's impossible for the $1.90 call to fill without the $200 call also filling
9:48
They both have to fill and they both have to fill at the exact same time. Now moving on from that
9:53
the other way we could have actually created this spread if we clear this out of here is by coming up here to that long leg again So right here the 190 strike call What I gonna do is come over here to the current bid and asking price just like before but this time instead of clicking on the ask to buy it I instead going to right click on that
10:09
number. Now as soon as I click on it, a little window is going to pop up with a whole bunch of
10:13
different options. Now in our case, we're going to ignore most of that and instead come down to
10:17
where it says trade strategy. Now from there, looking to the right, we can see there are a
10:21
whole bunch of different option strategies we could create like right here, butterfly
10:25
buy right collar but in our case we're going to come down to where it says spread and go ahead
10:30
and click on that now as soon as we do that we can see a little pop-up window comes up and this
10:35
does look a lot different than what we just did in the previous example but right up here at the top
10:39
it still says something very similar we want to buy to open one of the may 6th 190 calls but then
10:46
right below it the second leg is basically blank we have to fill in all of this information right
10:50
here so looking right here on the expiration date we'll go ahead and click on that and we will
10:54
select the same expiration May 6th. Let's go ahead and click on that. We'll then come up here to the
10:59
strike price and then I'm going to select the 200 strike call because that's the one we want to sell
11:03
and then as soon as I do that it actually tells us the net debit which is exactly the same as before
11:08
and it's the exact same trade. But I did want to make it clear that there are a couple different
11:12
ways to create spreads in here. You've got the manual selection method the way I first showed
11:16
you and then you've got this right click method which kind of builds out the trade for you
11:20
Now moving on from this let's go ahead and exit out of this window here and the next one I'm going
11:24
to go over is putting on a long put spread. Now in this case let's go ahead and flip over to a
11:28
different stock ticker. So I'm going to come up here to Facebook and let's go ahead and type in
11:32
coin. C-O-I-N. Hit enter on the keyboard. Now down below here we can see we still have the May 6th
11:38
expiration opened up. I'm actually going to change that to something else. I'm going to flip it over
11:42
to May 20th. Now down below we can actually see the May 20th expiration. We can see it's 29 days
11:48
out and we can see 10 available strikes down below. Now in my case I actually want to go further out
11:53
of the money to put on this long put spread. So I'm going to come up here to where it says 10 strikes and go down to 20, let's say. Now looking down here below, again, I am bearish on Coinbase
12:02
I think it's going to go down. So what I'm going to do is come over here to the 130 put. And let's
12:07
say I want to buy that one for $10.40. So let's go ahead and click on that. Now that I've got the
12:11
130 put down below in my order ticket, the next thing I'm going to do is sell the further out of
12:16
the money put along with this. And in my case, I'm going to sell the 120. So right here, $6.40
12:22
we'll go ahead and click on that. Looking down below in the order ticket, you can again see what
12:26
I'm about to do. I'm about to open one of the May 20th 1.30 puts while simultaneously selling one of
12:32
the May 20th 1.20 puts. Looking just the right, I can see my net debit is going to cost me about
12:38
$4 for this transaction. And remember, since each one of these contracts represents 100 shares of
12:43
stock, this $4 truly means $400. Now it's also important to remember that because this is a 10
12:49
point wide vertical put spread, that means the very most I could ever sell this thing for is $10
12:54
or $1,000. Now, since I'm paying $4 for it, I can't truly make $1,000 on this trade if I'm
12:59
exactly right. The absolute most I could ever make is the difference between the spread minus what I
13:04
paid for it. So in this case, the very most I can make is $1,000 minus $400, or I could make $600
13:10
on this transaction. But I think you guys get the idea of putting on long vertical spreads in here
13:16
pretty straightforward. So let's go ahead and clear this thing out of here. Go ahead and minimize it
13:20
out of the way. So in this next example, let's again flip over to a different stock ticker. I'm
13:24
going to go ahead and bring up Square. And let's actually say we are neutral to bullish on Square
13:29
So looking down here below, I'm going to say I think Square is going to stay above $100 a share
13:34
for the next couple weeks here. And what I want to do is actually sell that option contract. So I'm
13:39
going to click on $7.40 here. Now if I were to actually sell this option naked, I would have
13:44
$10,000 in risk on this trade because that's the most I could ever lose. Now, since I don't want
13:49
to have $10,000 of risk on this trade, what I'm going to do is actually buy a further out of the
13:53
money put as a hedge or as a protective put. Looking up here at the top, let's say I wanted
13:58
to do a $5 wide vertical put spread. So I'm going to come over here and buy the $95 put along with
14:04
this. So we'll go ahead and click on $5.90 here. Now looking down below, it almost looks identical
14:10
but this time we're going to be selling the closer to the money put. So right here, it says I'm
14:14
selling one of the $100 puts while simultaneously buying one of the $95 puts. You can also see over
14:20
here on the right hand side, instead of paying a debit, I'm actually receiving a credit of $1.50
14:25
So on this trade, all I need to happen is for Square to stay above $100 for the next month
14:30
roughly. And if I'm right, I'm going to make $150 on this trade. But hopefully you guys see creating
14:36
vertical spreads in here is actually incredibly easy. Just select the call you want to buy or the
14:40
put you want to buy and then select the put that you want to sell or the call that you want to sell
14:44
along with it. Now moving on from that, let's next go over how you guys would create an iron condor
14:49
in here. So I'm going to do is go ahead and clear all this out of here. And let's actually use
14:53
Square as the example. And keeping in mind that an iron condor simply means I think Square is going
14:57
to say roughly the same price between now and expiration I pretty neutral on it Looking up here let say I wanted to sell the 70 probability options which would basically just mean I going to sell the 30 delta
15:08
options. So looking up here, if I look for the 30 delta options, it looks like right now on the put
15:13
side, that would be the 97.5 strike put. So I'm going to go ahead and click on the bid price to
15:17
sell that one. In this example, I'm going to be creating a five point wide iron condor. So I'm
15:22
going to come up here five points further out of the money and click on the ask of the $92.5 put
15:27
to buy that one. Now looking down below you can see I'm basically just creating a short vertical
15:32
put spread right now. So what I need to do to create the iron condor is just do the exact same
15:36
thing on the call side. So looking down here on the call side and looking for the 30 delta puts
15:42
I can actually see that none of these are the 30 delta puts. So I need to expand this out
15:46
even further. Looking here if I scroll down a little bit further, again here is the roughly
15:53
30 delta puts looks like the 127 strike. I'm going to come over here to the current bid price $4.25
15:59
and go ahead and click on that. Like I said before I'm going to be selling five point wide so I'm
16:04
going to come over here to the 132 strike call and go ahead and click on the current asking price $3.50
16:12
Looking down below at the very bottom of the screen you can now see my order ticket. Again all it's
16:16
saying is I want to sell to open one of the May 20th $97.5 puts while buying one of the $92.5
16:23
dollar puts. I'm selling one of the 127s and then buying one of the 132s. So right here, I'm putting
16:29
on a five point wide iron condor and I'm doing so for a net credit of $2.05. Now the other way you
16:35
guys could have done that, if we clear this thing out of here, if I wanted to use the same strike
16:39
call, I'm going to come over here and this time I'm going to right click on it just like before
16:43
I'm then going to look down in this drop down menu, find the trade strategy window, and then
16:47
come over to the right and select iron condor down below. Now, as soon as I do that, a nice
16:51
little pop-up window is going to come up here and then all I have to do is then pick all of the
16:56
strikes that I wanted to buy and sell along with this. Now for me personally this is more of a pain
17:01
than me manually selecting the legs on the actual option chain itself so I don't like doing it this
17:06
way but if we wanted to if we wanted to build it out this way we would then come down to this
17:10
little drop down window. I think we were buying the 132 along with this one. We would then come
17:16
up here and find the sell to open leg on the put side and I think I was selling the 97.5 and then
17:22
buying the 92.5. So right here we're creating the exact same trade that still is an iron condor and
17:29
we're doing so for the exact same credit $2.05. Really this is entirely up to you how you guys
17:35
want to create these trades yourself whether it be the manually selection method or the right click
17:39
method it's all up to you. Now finally the very last one I'm going to go over if we go ahead and
17:44
X out of this is the butterfly spread. Now in all honesty I would actually switch over to the right
17:49
click method when creating a butterfly. I think it's a lot easier to do it but if we scroll up here
17:54
a butterfly basically just says I really don't think the sack is going to do anything up until
17:59
expiration. So looking at square here let's say I thought square was going to say roughly the same
18:03
value. I thought it was going to say roughly at 105. Now in my case I could pick either the call
18:08
side or the put side but in my case I'm going to pick the put side and all I'm going to do is go
18:13
ahead and right click on this option contract. From there, just like any of the other strategies
18:17
went over, I'm going to come down here to trade strategy and I'm going to select butterfly right
18:21
here. Now, as soon as we click on that, a little pop-up window will come up, actually building out
18:26
the butterfly spread for us. Now, in my case, this thing is not built out exactly the way I wanted it
18:31
to because remember, we want to sell to open the two contracts where we think Square is going to
18:36
stay between now and expiration. In my case, I think I said I wanted Square to be at 105 between
18:42
now and then. So I'm going to go ahead and change this one from a blank box to $1.05. What I'm then
18:48
going to do is buy these strikes $5 out of the money on either side. So right up here in the top
18:53
one, my first wing is going to be $100. So we'll go ahead and click on $100 here. Then I need to buy
18:58
another wing on the other side. So in this case, that would be the $110 strike. Looking down below
19:04
you can see the total cost for this butterfly spread would be a total cost of $1 or $100
19:09
Now, in the event that I'm exactly right on this trade, Square is exactly at $105 on May 20th
19:14
I could theoretically make $400 on this trade. So I'm risking $1 to make $400
19:20
Now, of course, you guys could change any of this stuff just like we change everything else
19:24
You could, of course, change the price just by highlighting it, change the time and force
19:28
All of this can be adjusted. But really, I think you guys should get the idea that trading spreads in this platform is actually pretty easy to do
19:35
It's probably my favorite platform outside of Thinkorswim. Now, I know we didn't go over everything
19:40
but that's really everything I wanted to cover for today to make sure you guys were comfortable trading spreads yourself
19:45
on the ActiveTrader Pro platform. Now, if I did miss anything or you guys have any additional questions for me
19:50
please leave them down below. And also be sure to check out my other tutorial videos
19:54
if you guys are wanting to learn more about this platform. But again, that wraps things up for today's video
19:59
I hope you guys all have an amazing rest of your week, and I'll catch you on the next one
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