 Okay, welcome back. In this lesson, we're going to discuss long put verticals. So remember, long just refers to the fact that we're buying this put vertical spread. If you buy it, you're going long. If you sell it to open, that means you're going, you're shorting. So we're buying this put vertical spread. So the market assumption when you put on this trade is you should have a bearish assumption, or you should hope or want the underlying security or symbol to go down so you're bearish. The implied volatility should be low when you use this strategy, because an expansion in implied volatility will help this position. Optimal timeframe, 30 to 60 days to expiration is kind of the sweet spot that 45 days, similar to what we do in most of our trading strategies. And the profit target is a bit subjective. So it's kind of a range, kind of in that 25 to 50% of debit paid is what we want to look for as a profit target. The downside risk in this trade is none. Obviously, you profit if the price goes down. So there's no, so the risk is not to the downside. And the upside risk is defined. So it's limited to the amount of debit that you paid when you entered the trade. So it's defined risk and it's limited to the debit that you paid. And the probability of profit, the way we set this up is approximately 50%. So this is essentially a 50-50 bet. This is essentially, like if you were at a short stock, this is a short stock replacement. So you think of that as a 50-50 because you don't necessarily have any extra probabilities on your side. You're just making an assumption, you're making a directional trade, and your probabilities are about 50-50. So the trade setup is we're going to buy one in the money put, and we're going to sell one out of the money put, okay? Now this is all done with one click, typically on your platform, it is with thinkorswim, but the setup is actually buying one in the money put and selling one out of the money put. And as a note, time decay or theta, kind of that daily time decay that you get with income strategies, the time decay, the theta can be positive when price is lower than your breakeven point, and time decay can be negative when the price of the underlying symbol is higher than your breakeven point. Let's go to the platform and take a look at an example. So when I look to put on these types of trades, I want to look for a symbol or a stock that has had kind of a short term or long term price extreme. So essentially when I'm using this, I'm simply just playing the role of contrarian. This stock has had a nice run from way down here up to here. So in the last 25 days, this stock is up over 8%, okay? So that's a nice run. Stocks don't go up forever. In this case, this is the healthcare ETF, XLV, extremely liquid symbol. So I'm simply looking to put on a directional trade that says this stock might reverse a little bit in the near future in the next 30 to 60 days. I think that's the assumption. So what we would do is simply go to the trade tab and look for the option chain in that 30 to 60 day range. Again, I stay out of the weeklies for this type of strategy. 56 days is the monthly that falls in that range, so that's the one we'll use. So between now and the next 56 days, I think that XLV is going to trade below where it is right now. Okay? And that's the assumption that I'm taking. That doesn't mean it's going to happen, but that's the way that I trade looking for price extremes or potential price extremes and looking for a bit of a reversal to profit on that trade. So go to the trade tab. Remember we're going to buy an in the money put so that in the monies are on the shaded side here. So and we want to look for the current price. So it's currently trading about $74.5, $74.62. So I'm just going to mess around with this and you can play with this as far as how wide you want your strikes to be. Let's just say we want to buy the in the money. And so we just select the one we're going to buy and we just do buy vertical, okay? So that's going to populate down below. It's going to input our 78 that we bought and it's indicated by a plus sign and then it automatically goes to the next strike lower. So we don't want that one. Remember we're going to buy one in the money put and then we're going to sell a put that's out of the money. So outside the shaded area. So let's say you know we want to kind of straddle get right around that where it's currently trading. So it's about 74.5. So if I chose the 78 let's just let's use the 71 for example because that gives us about the you know a similar amount of strikes on either side of where price is. So let's choose the 71 and then we can take a look and analyze that. So if we right click analyze trade that's going to populate on our risk profile here. And so what you'll see is this is where price is currently and so you can see to the upside if price were to continue to go to the upside your max risk on this trade is $341. So that's the debit that we would pay for this trade. On the downside it's defined so we don't have any risk to the downside and our max profit is $359. So we have a potential of making $359, potential loss, max loss of $341 and remember we're going to manage this trade as if we get a winner when we are at about 25 to 50% of max profit. So somewhere kind of in this you know 73 to 72 range if price moves down just that couple bucks just a little bit we can manage this trade for a winner and then redeploy that capital. So again just to review looking for a price extreme for something to go you know to look for a downside this fits that criteria we set it up and you can move these strikes around make sure you unclick the little lock box here and then you can you can move these around so let's say we didn't want to risk $341 let's say we wanted to risk less so we could we could move this strike in so here's our 78 strike we could move that into 77 if we wanted and we could move the 71 up to 72 and now it's still essentially a 5050 bet and look where this this hashed line is right here this dashed line look you've got about 48% chance it's going to close below this line between now and in expiration about 51% chance that it's going to close above it excuse me on to the downside so essentially I mean that's pretty close close enough 5050 bet so but with this with this version you're you're only risking $237 for max profit of 263 so why would I choose one of the other it's just a personal it's just a personal account it's it's you know maybe you maybe you're in a smaller account and you don't want to risk as much you know based on the amount you want to risk per trade the further out you make these so let's put this at 79 and this it you know this one at 70 you know we're risking $433 and max profit $467 so you can make more but you're taking on more risk to and your your your max max profit and max loss are moving further away from price so there's no right or wrong way to do this it's just a preference and how it fits into your overall portfolio so I'm going to go back to what we originally had which is the 78 71 and and just because I like you know it's not too these these strikes aren't too close to price they're not too far away I've got a good chance if it just moves down a couple bucks that I can I can bank that profit and move on to the next one and so I'm going to go ahead and send this trade in and I'm actually I'm going to kick it up a notch and I want to do I'm going to do two contracts so I'm risking 682 for max profit of 718 again I'm not going to hold this all the way to expiration though I am going to take this off at some point of a percentage of max profit somewhere between 25 and 50% so let's go ahead and send that right click confirm and send send and we got filled at 341 so so now we're in the trade you can see it's it's populated there the risk graph is just like we had it previously and so the last point would be you know how as far as as far as timing you want to be out of this trade before expiration so you want to you want to get out sometime if you're if you if it's a loser you know if it's a full loser you're just going to hold it because then the only the only thing that can happen is it could benefit you by by moving down so if you're already at a full loser just leave it on and hold on to it if it's somewhere kind of in between here not a full loser and in I'm in the last week of expiration I'm going to go ahead and take that off and then of course on the winning side once I reach a specific percentage of max profit I'm going to go ahead and take that off so I hope that was helpful we'll see you in the next lesson