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This long post is well worth the read to help in coping with a loss on a trade or more specifically when and how to take a loss.
| You are correct. It’s difficult to make the decision. But, it’s a necessary part of your overall trading strategy. In the spirit of full disclosure, there are people who claim that no risk management is necessary because when you buy an iron condor you already own options that limit your losses. But, IMHO, that’s insane. It’s just wrong to allow losses to get so large that they overwhelm profits. It’s far better to take smaller losses, even when it means taking fewer profits. A combination of good profits, small profits and small losses is my objective. |
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A good description of what a Long Call Ratio Spread is and how to use it.
While this is a Bull Spread option strategy, it can be a market neutral to bullish bias and non directional option strategy.
When to use : Neutral to Bullish Trend
How to establish : LONG 1x Call and Short 2x Call
Debit or Credit : Credit (preferably)
Margin Requirement : Yes
What is the Maximum Profit : Limited to between the Long and Short strikes
What is the Maximum Loss : Unlimited |
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Categories: Uncategorized
There are two ways to trade credit spreads, well to be honest there are many ways to trade credit spreads; however there are two basic option strategies. On is the low capital risk trade and the other is the high probability trade. The high probability trade is the one I recommend to most beginning option traders. The reason is that when the market moves against your trade you have time and space to get out of your trade or somehow adjust your trade before you have a major loss. Lets give an example of a high probability credit spread option trade.
The high probability credit spread trade consists of creating a trade using out of the money (OTM) options to compose a credit. Lets use an example of a stock trading at $55 that you feel is bearish, feeling it will fall and stay below $50. We can create a credit spread by selling an OTM $65 Call for $1.10 and buying an OTM $70 Call for $.50 creating a credit of $.60. The max value this is $5 (the difference between the strike prices) which makes your risk $4.40 ($5.00-$0.60). This makes for a high capital risk making only $0.60 while risking $4.40 or a 13% rate of return. However the probability of the trade being successful is much greater because already the stock has to move up 10 points just to reach your sold option. As it stands, the stock will need to close below $60 at expiration of the options and since it already is below $60 and you feel the stock is weak and will be going lower. The probability of it gaining 10 points or 18% is unlikely. In comparison to a low capital risk trade using at the money and in the money options to make the credit spread, the stock already being at 55 would have to to fall 5 points and stay below $50 for a low capital risk trade to be successful. This is what makes this credit spread a high probability of success and the preferred choice for beginning option traders.
To learn how to trade options in this manner, go to Conservative Options and check out the book How to Trade Conservative Credit Spreads
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Tagged: credit spread
An ebook on how to trade credit spreads.
How about a 5 to 15% profit with an 80% probability of success on each trade?
To learn more go to —> Conservative Options right now! |
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A free ebook on reducing your risk when trading options. Looks interesting.
Trading Stock Options is just as risky as driving a car!
Reading this FREE ebook will reduce that risk! |
| Six Steps in Taking the Risk Out of Trading Stock Options |
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Categories: Uncategorized
Looking at placing a Bull Put Credit Spread below 160on Apple (AAPL). A May 150/155 for more than .30. |
AAPL is peaking out at resistance of 180, MACD and Slow Stochs are still bullish, and there is a support at 160. At .30 the trade will net a 6% gain as long as AAPL does not drop below 160 in the next two weeks. It is a more risking credit spread than what I normally suggest but still worth a look. |
To place the trade I would wait a little in the morning and see how the market and this stock plays out. I would be looking for a drop which may increase volatility, which in turn will raise the premium values and the put prices making it easier to gain a little bit more on the credit say around .40. However if the market really decides to make a nose dive then follow the first rule of option playing – do not go against the market. |
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Brent Archer credit spread on Fed Ex
| FedEx (FDX) lower on negative freight comments |
For a bearish hedged play on this stock, I would consider an April bear-call credit spread above the $120 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. This particular trade, will make a 4.2% return in 4 months as long as FDX is below $120 at April expiration. FedEx would have to rise by more than 24% before we would start to lose money. |
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Too think I just purchased a Palm Treo. I guess my purchase just wasn’t enough.
| Palm dives on outlook cut |
For a bearish hedged play on this stock, I would consider a February bear-call credit spread above the $7.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. This particular trade will make an 8.7% return in 10 weeks as long as PALM is below $7.50 at February expiration. Palm would have to rise by more than 36% before we would start to lose money. |
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Brent Archers choice for a gun company…to trade a credit spread that is.
For a bearish hedged play on this stock, I would consider a June bear-call credit spread above the $10 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make an 8.7% return in 6 and a half months as long as SWHC is below $10 at June expiration. Smith & Wesson would have to rise by more than 40% before we would start to lose money. |
SWHC has been above $10 as recently as yesterday, but has fallen sharply this morning and shown resistance around $10.10 over the past few weeks. This trade could be risky if the stock bounces back strongly, but with drops like today’s and the one in October, investors will probably be cautious with this stock for the coming months. |
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Categories: Uncategorized
Summer an option trader posts a recommendation about GS with a credit spread trade
| If you’re looking for a hedged trade on this stock, consider a December bull-put credit spread below the $195 level. GS stock could fall up to 14.6% before expiration and this position would still be profitable. |
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