Many traders and investors dream about making consistent profits in the stock market. Typically, investors would turn to fundamental analysis for the medium to long term capital gains while traders would try to time the market using technical analysis to spot reversals or advantageous entry and exit with the first signs of trouble. Unfortunately for everyone, the stock market is a zero-sum game. What this means is that you should lose to someone else. Profits The market exchanges serves as a distribution center of wealth. Essentially, without knowing it, many novice investors and traders are actually trading against the professional and institutional traders. Who do you think will win most of the time? The answer is obvious. Credit Spread is one of the lesser known trading strategies available to the options trader. This strategy is call "credit spread" because you actually collect a profit upfront or a credit when you are in a credit spread position. Credit spreads are directional plays - bull or bear. The bull spread is called Bull Put Spread while the bear spread is known as the Bear Call Spread.
The Credit Spread Option Trading Strategy can be constructed to have a low risk investment vehicle. Using this strategy, we are able to use options prices to our full benefit. At the time Time decay works to our advantage the closer it gets to expiration. With this in mind, the time may very well be in our quest for profit. Our ally We just need to know how to use them to help us. Your time
Fact - about 80% of all options expire worthless, it is logical that serious and long-term investor only needs to write credit spreads for a living.
How will we benefit from Credit Spread?
Assuming that we are writing a Bull Put Spread:
If the stock moves up, we make money.
If the stock moves sideways, we make money.
If the stock moves lower, but is above the strike price we sold our bucket, we still make money.
I do not know about you, but any trade that you make when your stock moves higher, as it moves sideways, or even when it moves lower improve your chances of winning. Complete profit Writing credit spread is a powerful trading strategy because, if written correctly, it offers room for error and you would still profit even if you're wrong.
The closer it is to expire (most of the time 3 rd Saturday of the month), the better it is for us. We make money with the passage of time. Many seasoned credit spread traders like to see if their pay day. 3rd Saturday of the month
The biggest problem in Stock Options Trading is the race against the clock. Over 80% of options expire out-of-money or, in simpler terms, expire without value. If you bought options, this means that you would have lost in trading your money. So with this fact in mind, use an Options Trading Strategy that you would put on the other side of the table. And that is a time benefit trading strategy called using Credit Spread.
Copyright 2005 William Tan
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