I trade the verticals for different reasons. I like to sell verticals if premium is inflated and expected to drop. I like to buy verticals if premium is undervalued and expected to climb. It would take hours for me to adequately describe all the reasons and examples for verticals but here are a few tidbits.
There are two different types of verticals- debit spreads and credit spreads. Ther are 4 strategies- Bull Call Debit Spread, Bull Put Credit Spread, Bear call credit spread, and bear put debit spread. The debit spreads are called Long Verticals, and the credit spreads are called short verticals.
1.As a single trade strategy
Long Verticals:
If I think a stock is going to stay flat or move slightly in a direction, I will buy ITM and sell ATM and hold till expiration. If I think a stock is going to move hard I will buy slightly ITM or ATM and sell OTM and have a short holdtime.
Short Verticals:
If I am selling ITM strikes then the stock really needs to move. With this trade you have the lowest probability of a winning trade and get the larger credits, because of the higher risk. If I am selling ATM then the stock might need to move a little bit but you can still get decent -sized credits and risk/reward. If I sell OTM, I am expecting the stock to stay where it is now. This is the highest probability of success,but you risk alot to make a little.
2. As a multiple trade strategy:
To repair a long OTM call that goes against me. If I buy a call and the stock drops, I'll sell another call ATM or ITM. I do the same onthe put side. My goal in this strategy is to repair a trade gone bad.
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