Learning To Trade For Superior Profits and Protection With Credit Spreads (Puts or Calls)

Trading for Superior Profits and Protection with Credit SpreadsWith the general market direction stuck in a trading range and stocks at fairly high valuations, many investors find the strategy of selling naked puts a bit unnerving, especially those who never want to own stock. When periods such as the present one happen I add in credit spreads depending on the stock and the volatility. Good examples at present would be Apple Stock, Google Stock, Priceline Stock and Visa Stock. Of these stocks I trade in Apple and Visa. Both offer wide daily swings in prices and this makes my credit put spreads strategy highly effective at generating profits and offering protection.

Scheduling Profits

This strategy of trading for profits and protection within credit spreads. either puts or calls I developed 15 years ago. It is built around a schedule based on a percentage of gains and losses in the price of the option that has been sold. I developed the strategy basing it around a stop-loss or trailing stop strategy. While similar in many respects to using a stop-loss or trailing stop there are significant differences in my schedule strategy. This includes knowing in advance various percentages I am aiming for as the trade progresses and the ability to allow room for the option prices to fluctuate without “stopping” out my position too early. I also almost always buy to close my positions manually, without using a stop-loss as my strategy allows me to stay within a trading range which allows time to manually select price points and then aim to sell out at those points.

Works For Put or Call Credit Spreads

The strategy works well for both puts and calls because it lays out a trading discipline that is easy to follow. My schedule is based on 10% moves in the put strike I have sold. Investors can devise their own schedule built around their own comfort level. I always urge investors to set up a paper trading account with their discount broker and trade new strategies before risking actual capital. Today’s paper trading accounts are identical to real-time trading except there are no real losses. It is definitely worth checking out.

Double The Return Of The Original Spread

This is the method I am presently using Apple Stock in the biweekly Put Selling strategy. I have set up two credit put trades in Apple Stock. The first was May 2 for May 17 expiry and the second was on May 5 for May 23 expiry. If both of these trades were to expire out of the money and the full premiums earned, I would earn $6797.50. To date through using this scheduling strategy for my two credit put spreads I have earned $13,807.50 and still have one week left in the one trade and two weeks in the May 5 trade to continue to earn more income. The return then through using the scheduling strategy is almost double the original trade and most of the $13,807.50 earned has already been closed and is already busy in other trades as it works toward compounding my overall returns. Wealth building is all about having capital constantly working in a wide assortment of trades to compound capital as quickly as possible. By using a scheduling technique I am:

  • earning more profits with my trading method with credit spreads – often double what would be earned
  • protecting against large losses
  • forcing myself to take profits
  • reducing the likelihood of watching existing profits vanish with a change in the stock’s direction
  • growing my capital quicker than with a regular credit spread strategy
  • working toward compounding my capital faster
  • using a simple formula that is easy to set up, implement and follow

Trading For Profits and Protection with Credit Spreads

This article is a strategy discussion of understanding how to trade credit spreads, either credit put spreads or credit call spreads for superior profit potential while protecting against losses. It is 2900 words in length and will require 8 pages if printed. FullyInformed Members can can read this strategy article directly through this link or Members can sign in to the full members site here. Non-members can join here.


Disclaimer: There are risks involved in all investment strategies and investors can and do lose capital. Trade at your own risk. Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed and presented are financial or trading advice or recommendations. Everything presented and discussed are the author’s own trade ideas and opinions which the author may or may not enter into. The author assumes no liability for topics, ideas, errors, omissions, content and external links and trades done or not done. The author may or may not enter the trades mentioned. Some positions in mentioned stocks may already be held or are being adjusted.

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