I am an active trader of alternative credit spreads on the SPX, NDX and RUT broad based stock indexes. I am very conservative and only enter into trades that have a very high probability of being profitable. I write OTM Bull Put Spreads first. During months when the marketplace is moving sideways or slightly up, I add OTM Bear Call Spreads to produce Iron Condors. My goal is to collect premium month to month. I want all my spread trades to expire worthless.
I like trading the Indexes due to the fact they are not subject to the exact same wild price swings as individual stock. It is also less difficult to make risk management adjustments on Index trades than say GOOG which can change in value swiftly on some bad news.
An alternative credit spread is a limited risk alternative trade involving the simultaneous purchase and sale of two differing option contracts on the exact same Index, i.e. the SPX. This produces an immediate money credit in your trading account. A profit is realized in a credit spread position if the index moves in the direction anticipated, remains the exact same and even if under appropriate circumstances the index moves adversely to your position.
Benefits of Index Credit Spread Trading
• Index credit spread trades have a 90% probability of expiring worthless when filled.
• These credit spread trades can profit in any type of market. Markets these days are far more likely to trend sideways, or move slightly higher or lower month to month.
• The majority of time you just make a trade, collect your credit and wait for the next month. This is not a day trading system. There is no want to monitor the marketplace and your active trades all day lengthy in front of the personal computer screen. In fact it’s genuinely a quite boring trading system.
• Paper trading is the very best way to understand this choice strategy. It’s all free with CBOE’s new Virtual Trading system.
• The SPX, NDX and RUT Indexes are not subject to the same wild swings as individual stocks.
• With Iron Condor trades you get double the credit but only have one margin side at risk.
• You want your credit spread trades to expire worthless but you can constantly acquire them back for way much less than you sold them for.
• Your trading capital is only utilized to support margin requirements. Most choice brokers enable you to invest your trading capital and use it as collateral for spread trading. This way you can earn 2 returns with the same capital.
You can see my actual performance outcomes of all trades for the last 12 months and the present YTD return which is amazing. My website is over 25 pages and full of content that covers all aspects of this trading strategy.