SEE MY BRAND-NEW STRATEGY FOR TACKLING 2025 LIVE AT 1 PM ET ON MONDAY!
If you’ve been following along around here for any length of time, then you probably know I haven’t exactly been big on spread trading in the past.
We generally butter our bread with cheap options that can make big moves in a hurry.
But the team showed me something very, very interesting that has me changing my tune for the new year… Why?
They took 100 real trade alerts I issued with a 69% success rate, turning $10k into about $63k, and did some backtesting.
The backtesting showed that with a simple spread strategy, that 69% win rate jumped above 85%. And that $63k grew to more than $100k…
See why that might grab my attention and have me rethinking my strategy a bit?
So today, I want to discuss how I plan to capture a bit more on those moves I’m already making in the new year and beyond.
Yes, I’m Finally Trading Spreads Regularly
A call debit (or vertical) spread is a simple strategy for traders who want to profit from a directional move while better managing risk. This trade involves buying one call option and selling another at a higher strike price, reducing cost and capping both risk and reward.
Capping the reward is part of the reason I’ve shied away from spreads in the past, but the proof is in the data I already mentioned above. And if I can make more money, that’s what I’m going to do…
So let’s walk through how to set this up for any stock, and then I’ll use a recent example on a trade I did with Advanced Micro Devices (AMD).
To place a call debit spread, start by identifying a stock with a strong catalyst or significant options activity. This could be anything from earnings to an industry conference.
Next, choose two strike prices that align with the expected move. You’ll buy the lower strike call — closer to the current stock price — and sell a higher strike call to offset the cost. The difference between the strikes is your spread width, which determines your maximum potential profit.
For example, let’s say the stock trades at $120, and market makers expect an $8 move to $128. You could buy the 125 calls and sell the 130 calls, creating a $5-wide spread.
Your max loss is the cost of the spread, while your max profit is the spread width minus the cost. Place the trade by buying the lower strike call on the ask and selling the higher strike call on the bid. Set a good-till-canceled order to close at your desired profit level, simplifying the process and automating your exits.
AMD as an Example
Now, let’s look at how I applied this strategy to AMD.
A $2.2 million call buy on the Jan. 17 expiration, $117 strike calls caught my attention recently when it hit the News Flow Scanner.
AMD had a clear catalyst — its upcoming appearance at CES 2025 — and we know that AMD can be a big mover. So instead of mimicking the exact trade, I adjusted the strikes for better risk-reward.
I bought the $125 calls and sold the $130 calls, aligning the spread with market makers’ expected move to $131.
The spread cost $155 per contract, capping my risk at $155. With a $5-wide spread, my max profit was $345 per contract.
I set my take-profit level at 50%, placing a good-till-canceled order at $2.32, ensuring the trade managed itself.
Whether trading AMD or any other stock, a call debit spread lets you participate in directional moves with defined risk and an automated plan. It’s a straightforward strategy every trader should have in their toolkit.
If you want to learn more about trading spreads with me, I’ll be live at 1 p.m. ET on Monday, Jan. 6 — SAVE YOUR SEAT HERE!
The team at Lance Ippolito Trading
Lance doesn’t want the CCP spying on him, so you’ll never find him on TikTok. Same goes for other social media sites, which are filled with impersonators, scammers and crypto bros.
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
P.S. A New — and Better — Way to Trade Options in 2025
I’ve finally changed my tune…
I turned a $10k model account to $63k after 100 published alerts last year, with a 69% win rate.
But Nate Tucci adjusted the rules in backtesting, and that $10k grew above $100k with an 85.1% win rate.
See why that might change my mind?
And I’m revealing his adjustments live at 1 p.m. ET on Monday, Jan. 3….
