Here’s a step-by-step guide on how to short a put spread on your mobile device. In the example above, we use the Interactive Brokers mobile app. But all major brokerages that support options can do the same thing (ThinkOrSwim, E-Trade, TD Ameritrade, etc).
When to Short a Put Spread (Bullish)
In general, any short option trade should be done when volatility levels are elevated — such as right after a big drop — at the end of an 5-wave pattern, for example.
You want to short a put spread when you want to bet that the price action of the stock or index won’t go below a certain strike price by expiration date. You believe it will stay above a certain level. So wherever you think the end of the 5th wave is — you should give yourself some extra room and select a strike price that’s a few strikes even lower than that. Short that strike and buy the put strikes that are slightly lower than that. The prices in the option chain can tell you roughly how much you would get for different combinations.
So when buying puts — it is critical that your timing AND direction are correct.
If you don’t have a specific upside target after a big drop, shorting a put spread is a great way to potentially collect max profit. You can have no clue where or how far the bounce will be — but as long as it stays above a certain level, then that’s all that matters to you.
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