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Tom Preston Shows a Debit Spread That Profits Even If the Stock Doesn't Move
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Breakdown
0:00lesson
Long debit spreads for positive theta
- Long debit spreads make money over time even if stock doesn't move
- Positive theta from time decay in spread
- Compare debit cost to intrinsic value of in-the-money option
- Debit spread profit if stock stays at current price
2:17lesson
Tesla example: vertical spread analysis
- Tesla at 370 with zero intrinsic value for OTM options
- Bullish vertical: buy 367 1/2 call, sell 372 1/2 call
- Debit paid $2.50 vs intrinsic value of $3
- Profit $0.50 if stock stays at 370
5:17lesson
Risk management with debit spreads
- Debit spread grows into intrinsic value if stock stays still
- Compare debit cost to intrinsic value as metric
- Consider long call spreads if short spreads underperform
- Use as strategy, not trade recommendation
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