Was looking at a META Jun 5 $480/$475 put credit spread at $0.19 credit ($19 total). Never placed it, just exploring. Buying power reduction would be $481.
Max profit $19, max loss $481 — 25:1 risk against me.
Main goal is passive income on a margin account — something low stress, doesn’t need constant babysitting, and won’t blow up if I’m not watching every minute.
Trying to understand if this even makes sense:
• Is this ratio normal for credit spreads or are these just bad strikes?
• What % of spread width should you collect before it’s worth putting on?
• For passive income on margin — is this even the right strategy or am I looking at the wrong thing entirely?
• Is defined risk (spreads) always the move for beginners or are there better starting points?
• How do you size positions so one bad trade doesn’t wreck the account?
• If you trade META options regularly — what’s your typical setup? DTE, delta, spread width?
Never placed it, just learning. Looking for something I can set up, not stress about, and collect steady. Drop your setups if you’re open to it. No tripping, just curious 😅
Curious about this META put credit spread — pennies in front of a steamroller or actually worth it?
byu/Big_Worker_2006 inoptions
Posted by Big_Worker_2006
5 Comments
You should always trade options with the capital to assign / exercise otherwise you are limiting yourself in freedom and just straight up gambling.
In other words, how do options work?
There is zero volume and zero open interest on those strikes. You won’t be making that trade.
My initial reaction is this is a bad trade for you, and you were right not to take it. Here are some of my assumptions and the reasons for my conclusion.
I get the sense that at the moment $481 is a not an insignificant portion of your portfolio, tying up that amount of trading capital for over a month creates opportunity cost. The amount of potential profit would need to justify potentially missing out on better set ups during the life of this trade.
The risk/reward profile is not optimal. It’s not necessarily a deal breaker on its own, but to make it profitable at 25/1 you need to be sure you win it 96% or more of the time. That is a very high bar!
You said your goal is passive income and you need to avoid the requirement to actively monitor and manage. In that case, with credit spreads I would recommend either looking for a risk reward attractive enough that you can accept taking the max loss, and then just letting it run. Or alternatively placing strikes far enough OTM that you have plenty of headroom and only need to check on the trade at set intervals to make management decisions.
There are real advantages to fixed risk set ups for beginners, you know what is on the line before you enter so you can avoid blowing your account and survive a bad trade. However when selling premium you need to be sure to understand the impact of IV on the options pricing and how Gamma factors in.
A common rule of thumb is to risk no more than 2% or your total capital per trade. But that can be varied depending on the anticipated win rate and risk/reward profile of the trading style you take.
In answer to your question about strike selection and premium targets, that isn’t really a clean question to answer. It depends on so many factors. A better approach might be to start by deciding how much you want to risk, the percentage chance of the trade succeeding you want to aim for and the pay off you are prepared to accept. Once you know these you can work backwards to calculate strikes.
One piece of advice I would give is, ask yourself first “what do I think the price is going to do, by when and why do I think this, as well as what would need to happen to tell me I am wrong during the trade”. By answering these questions you can then work out the best trade set up to express your idea and it makes it cleaner to decide on strikes, expiries and Greeks you are looking for.
Too many questions with too many DIFFERENT answers for each to answer in this limited space but here is a general rule for premiums on spreads…. On ANY CREDIT SPREAD look to COLLECT a premium of AT LEAST 20% of the spread…. so your 480/475 credit spread would need a premium of AT LEAST $1 to consider it. Obviously collecting more is better. That is ONLY the financial part. You need to also look at the overall viability of the trade. When looking at a DEBIT spread you don’t want to PAY any more than 50% of the spread… so if your spread is $5 ONLY pay $2.50 OR LESS!!! Obviously paying less is better. And that is ONLY the financial part. You ALWAYS have to look at the overall viability of the trade just like any other trade. Best of Luck, Twilighter.
I actually currently have two separate spreads on meta I have a 27 Jan15 560/570 Put credit and a 27 March 19 620/640 put credit. I aim for as close to a 1:1 RR and usual trade further out dates as it allows me to roll