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Are you stuck in trades where the stock goes in your favor and you still lose money on options?

Or maybe you are picking stock but they go sideways and you exit right before it makes its big move?

Whatever your struggle may be… we have all been there at one point or another.

And that’s why I started trading credit strategies.

You see, these credit strategies allow me to trade with less stress and accuracy compared to a normal stock or option buyer.

And this all has to do with the way time decay works in your favor when you sell options.

Ready to learn how to utilize these strategies and 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 buy 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 high-premium option while purchasing 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.

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

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 a recent trade I took on NFLX…

NFLX:  I sold the Sept ’20 $320/310 put spread for $1.25.

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.

 

The Trade – Credit Put Spread

 

  • Buy : 18 Sept 20 310 @ 0.75
  • Sell : 18 Sept 20 320 @ 2.00

Net Credit: $1.25

Max Profit : $1.25

Max Loss : $8.75

So here’s a 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, 320, you will collect max 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 key support levels to give me the best shot of a winning trade.

Reviewing the trade:

  1. NFLX is trading at support created from the week prior
  2. The stock is trading under the lower bollinger band levels
  3. The Fractal Energy Indicator is trading above the upper threshold signaling a trend is ready to start

 

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 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

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2 Comments

    1. Hey, thanks for reaching out! I see that you have Fast Five Trades with us, which is going to be focus on stocks! Are you looking into some other options trading? I would be more than happy to set up a call with you! Let me know at haley@ragingbull.com.

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