Sorting by Minimum Net Credit and Maximum Net Debit

Sorting by Minimum Net Credit and Maximum Net Debit

Over the last several weeks, Option Party has been busy rolling out new features and filters. Maybe you’ve seen our blog posts about them and it’s likely you’ve encountered several on the platform. Well, we’ve got a new one to introduce and it focuses on the minimum net credit received and the maximum net debit paid in each trade.

After introducing the “Stock – Stats” filter, users were able filter through trades via P/E ratio, market cap, trading volume and more. Then, with the use of the “Stock – Financials” filter, users were able to sort by earnings growth, total debt and the dividend yield, among others.

One of the more recent updates included a filter to sort by “Moneyness,” or how far in-the-money or out-the-money the option trade is. In a nutshell, investors now have the power to choose where exactly their trade is placed along the options chain. Want a trade that’s trading right at-the-money? How about one that’s in-the-money by at least 4%, or out-the-money by at least 2%? Now users can filter by this metric to save themselves time and help find the perfect setup.

Perhaps combining the moneyness filter with our latest net credit/net debit filter will allow for even more efficiency among traders looking for top setups.

Minimum Net Credit and Maximum Net Debit

So what exactly is this filter? The name does a pretty good job with the explanation. Traders can now decipher how much money they will either pay per trade or how much they will collect. On credit trades, the filter will work from a minimum-perspective. In other words, traders can say they would like to collect at least $1.00 per option (or spread). This filters will include all credit trades north of $1.00. Conversely, on the net debit side, traders can say where the cutoff is. For example, a maximum net debit of $2.00 will only show trades that cost less than $2.00 per option or spread to execute. 

The net credit/net debit filter can be combined with specific strategies (like bear call spreads or bear put spreads, for example), as well as with other filters, like stock stats, stock financials, and as we mentioned earlier, moneyness.

This may go without saying, but to make sure it’s fully clear, the minimum net credit and maximum net debit are on a per option or per spread basis. For example, if we were searching for a minimum net credit of $4.00 per spread, we are looking to collect $4.00 or more per spread, not total. So if we sold 10 spreads for a minimum of $4.00, we would collect $4,000 in total, ($4.00 x 10 spreads = ($40.00 in total net credit, or $4,000).

Let’s Do an Example

For our example, we won’t dial up any other filters — no regards to the P/E ratio (as you’ll see by the scan results!), market cap, dividend, in-the-money or out-the-money. Let’s just focus on the minimum net credit, maximum net debit filter. However, we did scan options that expire within the next 10 weeks and only used two strategies: bear call spreads and bull put spreads.

With these two strategies, we’re looking to collect a net credit rather than pay a net debit. Using the minimum net credit filter, we wanted to collect a minimum of $2.00 per spread. When we look below at the top six results, it’s clear we didn’t use a P/E ratio filter, with Tesla and Amazon filling in most of the results:

Just for fun, we added in a P/E ratio filter of “Moderate — Less Than 20.” Perhaps to the surprise of some investors, despite the lower valuation stocks, the probabilities do not appear as favorable. Here are the results we got:

For a final scan, we wanted to use the maximum net debit filter. We used the same filters from the prior scan — a P/E ratio of less than 20 and options that expire in the next 10 weeks — but we switched our strategy to only include bull call spreads and bear put spreads. For the search, we used a maximum net debit of $2.00. Here’s what we got:

Combining Filters

Investors may have also noticed that Option Party has revamped its implied volatility filters. While this happened a few months ago, the changes are important. Why? By combining, say moneyness, implied volatility and how much of a net credit/net debit we are looking for, investors can literally carve out their perfect option trade setups. 

With our previous example, we cut out names like Amazon and Tesla by using a P/E ratio filter. But by using various volatility filters instead, we could make a similar move to remove volatile stocks without touching on valuation. This is noteworthy because even low valuation names can be volatile. With the implied volatility tools, investors can also highlight volatile stocks. 

As you can see, Option Party is unique, because it allows investors to have an unlimited amount of trade possibilities, based on the number of different filters and probability combination.

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