I write OTM Bull Put Spreads first. I add OTM Bear Call Spreads to create Iron Condors during months when the market is moving sideways or slightly up.
I like trading the Indexes because they’re not submitted to the same wild price swings as individual stock. It is likewise easier to make risk management adjustments on Index trades than say GOOG which can change in value quickly on some bad news.
What exactly is a Credit Spread Option Trade? It is a trading strategy in which you buy an outside of the money option at a given strike price and then you sell an outside of the money option at a different strike price of the same month. As time goes on the options will decay in value and provided that the price of the index doesn’t go past the sold strike price at the close of expiration you’ll receive a full credit winning trade. A profit is realized in a credit spread position if the index goes in the direction anticipated, is the same and even if under appropriate circumstances the index moves adversely to your position.
With the S&P 500 price index up almost 145% from its 2009 low as of May 22 this year, many vested stock options are ‘in the money,” or potentially worth exercising. Our research has found that there is an optimal time to exercise each option that is in the money. The time depends on the option’s price and the owner’s accumulated wealth. An option’s price consists of two components: its intrinsic value and its time value. The intrinsic value of an …
What if another event like 9/11 hits the market? Of course no one can predict the future. However it’s a good idea to limit your risk and exposure in the market is case an event occurs that causes the market to decline dramatically. All Put Spread Trades should be protected with the Stop Loss orders. These orders are easy to put in place once your spread order is filled. If the market does drop dramatically your stop loss order will be implemented automatically by computers and your Put Spread will be closed.
Trading can you trade options on expiration day
Can I trade credit spreads in my IRA? Yes. The options brokers with allow you to trade credit spreads in your IRA as long as your account is all cash. This is a federal requirement. Also, most brokers will let you use 50 percent of the invested capital in non IRA accounts for margin.
The majority of time you make a trade collect your credit and wait for the following month. This isn’t a day trading system. There is no need to follow up the market and your active trades all day long in face of the computer screen. In fact it is really a very boring trading system.
Paper trading is the most effective way to learn this option strategy. It’s all free with CBOE’s new Virtual Trading system.
You want your credit spread trades to expire worthless but you can always buy them back for way less than you sold them for.
Your trading capital is only used to support margin requirements. Most option brokers allow you to invest your trading capital and use it as collateral for spread trading.