When most traders see a bullish chart they’d like to trade, they’re probably thinking of trading via buying stock (or even calls).

And sometimes that works…But other times the trader will be correct on the direction and still lose money on the trade.

So how do traders overcome this problem? One way is by selling credit spreads!

This trade gives you the ability to make money in up, down, or sideways markets!

And this pattern is so robust, it is one of my go-to trading patterns when looking to get long a stock.

And did you know – by combining credit spread reading with the strategy at Options Profit Planner – I am still able to go through undefeated throughout one of the craziest markets and history.

Which is why today I am going to teach exactly how to get on the right side of the trade and to put the odds of winning in your favor!

 

Options Profit Planner

 

While trading I always try to pick the best strategy for the job at hand…

And if I wanted to get long a stock, I wouldn’t simply by a call…

Insteads – sometime it’s best to select from naked put options when looking for the most bang for your buck.

And a more conservative – a trader could place a credit put spread to get long these markets as well.

Why’s that?

Credit Spreads involve selling a high-premium option while purchasing a low-premium option in the same class or of the same security, resulting in a credit to the trader’s account.

While most options traders are focused on debit spreads, this gives traders a unique advantage when trading credit spreads.


Credit Spreads

 

Credit spread strategies make you money while debit spread strategies cost you money.

And when you are a business owner, you want money coming in and not going out.

But that’s not the only thing that separates the two types of spreads.

A credit spread involves selling a high-premium option while purchasing a low-premium option in the same stock and option type.

A
debit spread involves purchasing a high-premium option while selling a low-premium option in the same stock and option type.

 

The Credit Put Spread


Let’s take a look at an example of a credit spread on BAC to place the long/neutral biased trade.

First, when trading a put credit spread you will want to focus on the right-hand side of the options chain. 

 

Source: Thinkorswim

 

Next…the right side of the options chain is where the put contracts are listed in this option chain.

And to complete a short put spread, you would look to simultaneously sell a higher priced strike and sell a lower priced strike

One of the biggest problems new traders have with options is selecting the strike price for the position they are building.

Having problems with finding the strike price? Click here to learn more about which strike prices to choose.

 

The Trade – Credit Put Spread

 

  • Sell 21 17 APR 20 @ 1.00
  • Buy 17 17 APR 20 @ 0.35

 

Total Risk:  $33.50 / contract

Total Profit: $6.50 / contract


Here is the risk profile on the credit put spread.

 


Source: Thinkorswim

 

From the chart above you can see that if the stock stays above its breakeven, you will see a return on your trade. And if the stock stays above the upper strike, 21, you will collect mas profits.

 

Why Did I Chose This Spread


I choose to use credit spreads over debit spreads because I get
paid upfront to execute the trade.

What does this look like on a chart?

 

Source: Thinkorswim

 

As a technical trader I like to structure my trades around patterns and psychological levels to give me the best shot of a winning trade.

In this example, I believe the banks will be bailed out and continue to trade higher in the short term.

Reviewing the trade:

  1. The stock is trading at support created from 6 years ago.
  2. The stocks are trading under the lower bollinger band levels
  3. The Fractal Energy Indicator is trading below lower threshold signaling exhaustion


Now, if you think the stock is going to trade higher, why wouldn’t you just trade long calls?

Next… you want to focus on just the call side when placing that trade

Here’s a long call contract traded:

 

Source: Thinkorswim

 

One of the biggest problems new traders have with options is selecting the strike price for the position they are building.

Are you having problems with finding the strike price? To learn more about which strike prices to choose, Click here

From the chart above you can see that if the stock stays below the breakeven, you may not actually make any money at all.

In fact, you need to be correct about time, direction, and price.


Wrapping up

 

Here at Options Profit Planner, I utilize an options trading style focused around credit trading to generate income for my business.

Since trading is a business I always focus on the money coming in and the money going out.

Now I bet you are wondering what credit trading is

Credit Spreads involve selling a high-premium option while purchasing a low-premium option in the same class or of the same security, resulting in a credit to the trader’s account.

Credit spreads give unique advantages to traders when trading credit spreads, with the most important being that you are paid upfront to place a trade!

And as a business owner, I want to make sure I know how much money I have coming in and out each and every month.

Since running a trading account is actually a business and not a trip to the casino!

To learn the process I use day in and day out to lock in consistent profits, click here to sign up today!

Author: Dave Lukas

It’s hard to believe but the market was at record highs a little over a month ago now…

This is a move that caught everyone off guard— a bonafide “black swan” event.

But there was one thing that might have known it was coming…

A few weeks earlier, the markets gave us an ominous sign. This sign indicated that stocks were running out of steam.

But it’s not something you would have picked up on a standard stock price chart.

Not long after the markets signaled total exhaustion in their Fractal Energy… they plummeted lower

How did that happen?

Well… that’s because Fractal Energy is found throughout nature and the entire market!

And now it’s starting to signal a bottom in this selloff!

So before you get out there and buy stocks… let’s take a look at what exactly Fractal Energy is telling us where we go next.

 

What Is Fractal Energy

 

Fractal Energy is the cornerstone indicator of Options Profit Planner and its power is used to pinpoint key market reversals.

The power of fractals allows me to determine the strength of trends and how much “life” is remaining in a stock’s movement.

There are 2 main components of Fractal Energy:

  1. Fractal Pattern
  2. Energy 


And when you use the power of this indicator you will be able to successfully determine the strength or weakness of trends on any stock.

Let’s take a look at how this works…


The Weekly Chart

 

By using Fractal Energy Indicator, Options Profit Planner has been able to predict this move down and this bounce almost perfectly!

And the way to predict larger market movements is to reference a longer time frame to understand what the major trends are doing.

Let’s take a look at SPY’s with the Fractal Energy plotted…

 


Source: Thinkorswim

 

Here is how this breaks down…

Breaking down what Fractals said about the markets at all time highs:

  • The Fractal Energy indicator dropped to new lows, below the lower threshold value of 30
  • Markets struggled to continue trend higher, showing weakness in the stock

And now that the markets are seeming to be putting in a bottom, this time frame is

Now that the Weekly chart is showing a possible trend reversal in the markets, let’s take a look at the Fractal Energy on the daily timeframe to see what’s going on.

 


Source: Thinkorswim

 

The Fractal Energy fell below the lower threshold that is showing exhaustion in the stock’s tred.

As the indicator continues to move higher, this is showing that the markets are ready to slowly trade higher.

When the markets trade sideways or higher they collect energy and store this energy before making its new trend, either higher or lower.


The Daily Chart

 

Once the trend or reversal is identified on the Weekly (or Monthly) timeframe, it’s best to then reference the daily time frame and see what the indicator is projecting.

Now… let’s take a look at the fractal energy and see what is happening on the daily time frame.

 


Source: Thinkorswim

 

After looking at the Daily timeframe, there are two recent things that occurred with the Fractal Energy that signal a “build-up” of energy is occurring.

Key points:

  1. The Fractal Energy indicator fell from “charged values” to “exhaustion values”, or value less than 25.
  2. Fractal Energy is building back up to “charged”, showing the stock is getting ready to trend again


As the indicator dropped below the 25 value, it is considered to be “exhausted” from the downmove and a trend higher or lower is imminent.

And since the indicator rose back above the lower threshold, it is recharging the energy in the markets.

This “recharge” is needed before the market is going to be able to try and regain some ground that was lost in the past two weeks.

So what does that mean a trader can do?

Let’s take a look at a sample trading using my favorite option strategy to get long the stock market.

Next…

 

 

The Trade


Now that we believe the markets are going higher, let’s take a look at a trade we can place on a stock using his indicator.  

 


Source: Thinkorswim

 

Key points from analyzing the stock chart:

  1. The daily bars appear that they are ready to bounce back from the sell-off
  2. Higher lows looking to form to confirm uptrend
  3. If low might be tested, it must hold
  4. The Fractal Energy is getting “charged up” showing the stock is ready to trend again

The way to trade this stock is by either selling naked puts or trading a credit spread.


The Credit Spread

 

Trading a credit put spread on the markets to provide downside protection. Another benefit of trading a credit put spread is that the odds of a winning trade are greatly in your favor.

If a stock drops, goes sideways, or increases you can make money in this position!

Let me explain…

A credit spread is a directional strategy that requires a trader to buy an option that is at a nearby strike and sell an option that is at a further strike. Both in the same month and on the same stock.

This can be a highly advantageous choice instead of going long the stock directly… especially during extreme periods of high volatility.

But for ease of trade management, I am going to go with a Naked Put strategy.

 

Naked Put

 

Since spread trades can be more difficult to trade than naked puts, we are going to place a short put trade on AAL.

By using Support as a place where the stock should bounce, we are going to target selling Put contracts that are below that level.

For your reference, here is a chart of AAL and the options on the stock.

 


Source: Thinkorswim

 


Source: Thinkorswim

 

Why do I want to trade a naked put instead of a credit put spread?

Well I feel comfortable with owning AAL at a price that is over 50% lower than the current trading value of the stock.

Here’s what I think…

I also want to focus only on naked puts at this time as they are easier to manage and defend. For example, I am putting new trades in on DAL and AAL this week. Why? First, they are at strikes over 50% lower than where the stocks are currently priced and second, I believe the airlines will get a bailout like in 2001.  

 


Wrapping Up

 

When trading with Fractal Energy, a trader can find market reversals that can put them in a position to generate significant income from selling puts or credit spreads.

By selling puts or a credit spread, the trader will make full profits by the options expiring with little or value.

Additionally, the put seller will be able own the stock at their desired levels and turn this position into an investment. And once they own the stock, the trader will be able to ride the price higher after the selloff is over.

And that’s why Fractal Energy is the cornerstone indicator of Options Profit Planner!

To see more trades like AAL and how to use the fractal energy… Click Here To Join Options Profit Planner Today!

Author: Dave Lukas

A lot has been said about the market’s volatility over the last five weeks.

Make no mistake about it, what we’re experiencing during the COVID-19 pandemic is unprecedented.

So instead of telling you my opinions where  we go next. I want to talk to you about strategies.

Because the strategies you select in this market will determine whether you make money, lose it, or just break-even.

I discovered the best approach to trading these markets has been with options.

Which strategies am I referring to, and how did I get my start creating passive income with options?


How It Started

 

I realized early in my career that I was looking for something different… a way to achieve financial freedom while being able to support my family.

Like many entrepreneurs, I had the drive to start and grow a successful business at a very young age.

And like most entrepreneurs when they first start out, I immediately had to face failure.

But that’s ok! I took it as a time to learn and to grow so when I was to start my next business I had the skills to succeed.

First, as I started my next business, I had to quickly find ways to increase cash flows in order to pay the bills and keep the doors open every day.

Like other companies, owning a trading business comes with the same set of requirements.

To generate cash flows and earn profits!

Which is why I decided to trade options for income  instead of paying to speculate on stocks like I would at a casino.

Why do I trade options instead of stock?

Options give me two distinctive advantages over trading stocks

  • Dictate what price you will pay for a company
  • Get paid upfront to take a trade


And that’s exactly what I need in a business!

It’s important to remember that options give me the ability as a business owner to name the price I buy inventory (stocks) and at what price I want to pay (the strike price) for that inventory!

Now… in order to understand how this works… let’s take a closer look at options.


What Is An Option?

 


Definition: Options are financial instruments(derivatives) and are based on the value of underlying stocks. An options contract offers the buyer the opportunity to buy or sell the underlying asset.

There are two types of options:  

  1. Call Options – Allow the buyer to buy the asset at a specific price on a specific date. 
  2. Put Options – Allows the buyer to sell the asset at a specific price on a specific date.


All option contracts all have specific expiration dates by which the trader must exercise their option.

There are two types of option traders, a buyer and a seller.

  1. Option Holder has the right to buy or sell the underlying asset at a specific price.
  2. Option Writer is obligated to buy (or sell) the underlying asset if the contracts are assigned.


Call and put options are the two foundations to a wide range of strategies designed for hedging, income, or speculation.

The two ways options are traded: 

  • Option buying – speculation and hedging
  • Option selling – income generation


And since we are looking to run a successful business we are going to want to focus on option selling strategies only.

But first…let’s take a look at why buying options won’t work for income generation.

 


The Problem With Buying Options

 

Here is a hypothetical example of a trade we can place.

After looking at the Fractal Energy of AAPL, a trader is bullish on this stock and wants to take a long trade at $248.

Here’s is the chart on AAPL:

 

Source: Thinkorswim

 

At this point the trader has only a few choices they can make on how to trade AAPL.

They can do one of two things…

Choice 1: Buy the stock

Choice 2: Buy the call option

Let’s break down each possible trade that can be made and see what issues they have in common with each other.


Buying The Stock

 

Trader has to purchase 100 shares of Apple at $248 per share.

By doing so, this will tie up approximately $24,800 in buying power on that single trade!

And when you buy stock, you have unlimited profit and severe loss possible on the trade.

When a trader buys a stock, they are actually taking more risk than they think they are.  

 


Source: Thinkorswim

 

Now let’s take a look at long call options…


Buying The Call Option

 


A trader wants to purchase 100 shares of AAPL using options.

He would purchase 1 at-the-money call option, which gives the trader exposure to 100 shares.  

 

Source: Thinkorswim

 

The trader would purchase 1 AAPL 17 APR 20 Call @ 16.90 which would cost the trader $1,690.

For a long call:

Profit: Unlimited

Risk: Cost of stock option

Here is the payout diagram for a long call option.

 

Source: Thinkorswim

 

How does this work?

Basically… in order for a trader to profit on a call option, the stock needs to go in the correct direction and beyond the breakeven point before you make any money.

And if you get the direction right, but miss-calculate the amount it will move up by, you will still lose money!

 

What is the solution?

Buying options is an uphill battle and the premiums to establish a position make turning profits extremely difficult.

That’s why we turn to selling options to put the house odds in our favor.


Selling Options – Be The Casino, Not The Gambler

 

As a trader, selling options allows a trader to take on the roll of a casino owner.

A casino, or the house, has a small but well-defined edge in the markets. The long term goal is to make a steady stream of income for their business.

And one thing they realize is possible and accept is that they will sometimes take losses, both small and large.

Like any tool traders may use, there is a time and place to sell options.  A trader must maintain a solid understanding of current news and understand that market events may significantly impact a stocks price.

When selling options is correctly utilized, this is a sophisticated way of entering into equity trades or generating income for your portfolio.

So let’s take a look at how to gain long exposure when selling put options.

 

 

Naked Puts

 

Naked puts, or a short puts, is another way to trade a stock if you anticipate a rise in price.

This strategy allows a trader to collect income if the stock trades up, down, or sideways prior to the expiration of the options contract.

One of the key benefits of trading this strategy is that it allows a trader to get paid upfront to place this trade.

And if the stock stays above the breakeven prior to expiration, the trader could keep all of the premium collected on this option.

The naked put is one of the go-to strategies for professional traders when it comes to selling options.

This is because it allows a trader to take ownership of the underlying stock at a desired price and date.

And due to stock ownership possibilities, this theoretically keeps the amount of losses an option trader has compared to trading stock equal to one another.

 

 

Here is the risk diagram that is associated with a short put.

Even though the chart looks like unlimited losses, the value of the asset going to $0 is the theoretical max loss.


Bull Put Spread

 

An alternative to the naked put is a spread trade called the bull put spread.

The main advantage to a credit spread is the reduced risk of losses compared with the naked put trade.

Like a short put, a bull put spread is used when the trader expects a rise in the price of an asset, but doesn’t want to assume theoretically unlimited losses to their position.

The spread is placed by simultaneously purchasing a put option at a lower strike price and selling a put option at a higher strike price, in the same stock and expiration date.

 

 

This is considered a limited-risk trade since the sale of the put option is covered by the purchasing of the put option.  


Final Words

 

To summarize, premium selling is known to generate a wildly profitable and extremely smooth equity curve for a trading business.  

  • There is the risk of an occasional large loss, but this is mitigated with the use of credit spreads instead of naked options.  
  • The return of a premium selling options book is that of a mean reversion stock trading system, with a large number of small wins with the occasional ‘fat tail’ trade.
  • Selling Naked Puts is one of my favorite strategies since it allows me to purchase stocks at a discount and get paid doing so!


Want more proof that selling options is the
only way to consistently make money?

My trading account has gone undefeated – even through this recent market collapse!  It’s unbelievable that it has seen no losing trades throughout this turbulent market.

So… are you looking to get trade ideas that only require 15 minutes per week to trade for yourself?

 

Click here now to sign up for Options Profit Planner!

Author: Dave Lukas

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