PUT CREDIT SPREADS ON ROBINHOOD TUTORIAL 2024 (EP. 198)

Introduction

In this tutorial, you'll learn how to set up a put credit spread, also known as a bull put spread, using the Robinhood trading platform. This strategy is useful for generating income while limiting risk. Understanding how to buy and sell options is crucial, as trading options can carry significant risk.

Step 1: Understand the Basics of a Put Credit Spread

• A put credit spread involves selling a put option and simultaneously buying another put option at a lower strike price.
• The goal is to profit from the premium received from the sold put, while limiting potential losses through the purchased put.
• This strategy works best when you expect the stock price to rise or remain above the strike price of the sold put.

Step 2: Set Up Your Robinhood Account

• If you don't already have a Robinhood account, sign up at the Robinhood website or app.
• Ensure your account is enabled for options trading. This typically involves filling out an options trading application where you provide information about your trading experience and risk tolerance.

Step 3: Select the Stock for Your Spread

• Choose a stock that you believe will stay above a certain price level for the duration of the trade.
• Research the stock’s recent performance and market trends to determine a suitable strike price for your spread.

Step 4: Choose Your Strike Prices and Expiration Date

• Select the strike price for the put option you will sell (higher strike price).
• Choose a lower strike price for the put option you will buy, which will help cap your potential losses.
• Pick an expiration date that aligns with your market outlook, typically within one to two weeks for short-term trades.

Step 5: Execute the Trade on Robinhood

1. Open the Robinhood app or website.
2. Search for the stock you selected.
3. Tap on ‘Trade’ and then select ‘Trade Options.’
4. Select ‘Sell’ for the higher strike price option and ‘Buy’ for the lower strike price option.
5. Choose the same expiration date for both options.
6. Review the order and confirm to execute the trade.

Step 6: Monitor Your Position

• After executing the trade, keep an eye on your position and the stock's performance.
• Be prepared to close the position early if the stock moves against your expectations or if you reach your profit target.

Step 7: Close the Spread

• If the stock remains above the higher strike price at expiration, both options will expire worthless, and you keep the premium as profit.
• If you need to close the position early, sell the long position (the put you bought) and buy back the short position (the put you sold).

Conclusion

Setting up a put credit spread on Robinhood can be a great way to generate income while managing risk. Remember to conduct thorough research on the stock you choose and monitor your position closely. As you gain experience, you can refine your strategies and explore more advanced options trading techniques. Happy trading!