Here at tastytrade, we place a great deal of importance in the mechanics that lie at the core of our options trades.are imperative, but the correct strategy and timing can result in less profits than desired if our mechanics are off.
Today’s study from the Research Team dives specifically into our favorite strategy for directional plays in– . We know that debit spreads are made up of a , but where should we be placing these strikes exactly?The Study
Using the S&P 500, we formed debit spreads usingfor the long and short options:
- Long 70 Delta Put / Short 50 Delta Put
- Long 60 Delta Put / Short 40 Delta Put
- Long 30 Delta Put / Short 10 Delta Put
We looked specifically at a time where the S&P 500 sold off consistently to see which debit spread performed the best if the directional bias was correct. Our results showed that the debit spread consisting of a long in-the-money put and a short out-the-money put was the optimal setup.
Check out the segment above to see all the numbers behind optimal debit spread mechanics.