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Trading credit spreads is a very popular strategy among “income-based” traders, as credit spreads have limited loss potential and a high probability of profit.
However, high probability strategies come with a cost, which is unfavorable risk/reward. Typically, credit spread options strategies will have far more risk than reward, which means many profitable trades can be wiped out by one unprofitable trade.
In this video, I share my analysis of a put credit spread strategy applied to the S&P 500 ETF.
We’ll explore the historical performance of simply selling put spreads in SPY every single month. After analyzing the results with no trade management, we’ll look at the implementation of profit targets, stop-losses, and strategic entry filters to help improve the strategy’s performance.
Lastly, I discuss exactly how to size credit spreads as part of a long-term systematic trading plan. I’ve included a final put spread strategy with various trade size allocations, as well as the historical performance of the strategy when using these allocations.
My hope is that this research will help open your eyes to the true nature of the “high probability” options trading world, the downsides that come with it, and how to work with these downsides to produce positive trading results long-term.
Be sure to leave a comment down below with any questions you may have!
=== RECOMMENDED VIDEOS/RESOURCES ===
Short Puts Explained: https://youtu.be/RO0ezQEWXdM
Bull Put Spread (Put Credit Spread) Explained: https://youtu.be/fSMCL5U9M-I
Call Options 101: https://youtu.be/fUZHmJAvN30
Implied Volatility Explained: https://youtu.be/H-NHZq-skFo
Stock Options Trading 101: https://youtu.be/3bELT5FZCic
Why Early Exercise/Assignment is Rare: https://www.youtube.com/watch?v=7pTb1a5IgKM
Options Trading For Beginners (PLAYLIST): https://www.youtube.com/playlist?list=PL33AZa4cv-o58ldr-5zSn4ROx4SZG7Jyo
tastyworks Tutorials (PLAYLIST): https://www.youtube.com/playlist?list=PL33AZa4cv-o56a2BO3jpK_PBUFe3FdvxP
Option Pricing EXPLAINED: https://youtu.be/-nnJ4pMBaxA
Options Trading 101: https://youtu.be/3bELT5FZCic