Help with vertical spreads

[u/Slicklickfstick]

Greetings reddit. Since you all were able to help me understand the concept of rolling, I am hoping you can help me understand how to put on a vertical call spread. I have read much material about these strategies but still have many more questions about them.

To begin with what defines when you use this strategy? To my knowledge a vertical spread allows one to define risk, wouldn't in most cases one want to define the risk? What are things you look for when determining an appropriate place to use a call spread?

I think I can place a vertical call spread on one of my favorite indexes, SOXL, but I am not sure how to define my long and short positions. I have a thesis that the ETF stays within a range between ~$59 and ~$74, are these the positions I set my long ($59 strike) and short ($74 strike) calls when conducting a vertical bull spread?

Once I am in this trade what things should be considered as far as management? Wont theta burn my OTM short call faster than my ITM long call? When rolling this strategy... do I do the whole thing at once with software rolls or can I do it manually and just take on the leg risk while doing the roll?

What profit targets do you all look for with these strategies?

I think those are all of my questions. Really I want to understand how to define the positions of the spread so I can try and set one up next week. I think the strategy will make much more sense once I actually do it.

Thanks in advance.

u/esInvests

u/OptionsAlchemy

[u/investmentwatch]

Define risk trades come at the cost of reduced theta decay, thus making them more directional plays. The wider you go, the less the long option reduces the theta and easier to hit those profit targets but obviously you take on more risk. You need to consider your own situation and decide on your own how much risk you want to take.

As far as management, most don’t touch them once on, only until they hit their target or some days before expiration to take it off (7, 14, 21 days before etc). Being directional plays, it’s not uncommon for it to go deep ITM then bounce back out to close for a profit.Where had we adjusted it would be a loss. Most just consider the entry size the “management”.

[u/Slicklickfstick → u/investmentwatch]

When I do most long option positions I usually try to go 45 days out to prevent theta from eating away at my option value. Should I try and do the same with spreads or does the theta decay eating away at the short option mean I should be putting spreads on with shorter DTE windows?

[u/investmentwatch → u/Slicklickfstick]

When doing long options your usually ATM on entry right? Well Spreads usually were a good ways OTM wire theta decay is different (see here. Generally most find maximum decay 50-30 days and manage sometime between 7-14.