Option Spreads are the preferred method for the more conservative trader.
Do you have limited funds to trade with or do you like the idea of a monthly income, then option spreads is the right trading strategy for you!
Here I cover many types of stock option trading; however I specialize in credit spreads, because it is my favorite way to trade.
If you have questions about this lens feel free to Contact me!
How to Trade Credit Spreads
I am asked all the time how to trade credit spreads. What system do I use?Well here it is - here is the system I use to trade credit spreads.
How to Trade Conservative Options
A system using credit spreads on the indices to generate monthly profits and income. The strategy earns about 5-15% per month, while maintaining a limited risk. It is exactly how to trade credit spreads - going for the nice simple gain without incurring the large risk. Exactly how to stay profitable in the trading game.
So if you wanted to know how I trade credit spreads this is it, order How to Trade Conservative Options today.
Free Ebook!
Six Steps in Taking the Risk Out of Stock Option Trading!Are you a beginner in options trading or do you want to be? This free ebook will give you what you need to reduce the risk in options - knowledge and experience.
It gives you the resources you need to start out you journey on how to be a successful options trader.
Check it out here - Six Steps in Taking the Risk Out of Stock Option Trading
Where to learn about option trading!
- Conservative Options
- A site with an ebook for the beginner in options trading.
- Credit Spread Trading Made Simple!
- A fantastic complete program on How to Trade Credit Spreads.
- Online Option
- Dr. Stephen Cooper's straight call and straight put system of trading is one of the easiest to follow and understand systems out there. It is a simple step by step instructional system with an unbelievable group of like minded traders all communicating via a web forum and chat room. An excellent resource.
- Income Trader
- Quite possibly the best e-newsletter for stock and option trading out there and I have tried several. These guys specialize in credit spreads as well as other types of trading. This is where I learned how to trade credit spreads and calendar calls correctly.
- Writing Puts
- This is the parent site for the Income Trader newsletter.
- Superior Investor
- This is a forum with a bunch of savvy investors discussing the markets and trades they have or wanting to place. Excellent resource to just converse with some of these experienced traders and investors.
So what is a Credit Spread anyway?
An options strategy where a high premium option is sold and a low premium option is bought on the same underlying security.
OK I know that is very vague, so lets see if I can do better.
It is a trading strategy in which you buy an out of the money option at a certain strike price and then you sell an out of the money option at a different strike price of the same month. As time goes on the options will decay in value and as long as the price of the stock does not go past the sold strike price at the end of expiration you will receive a full credit winning trade.
For example,it is January and XYZ stock is currently at $54 and it looks as if it is bullish or will increase in price over the next month and you firmly believe that the stock will not go below $50. You would trade a Bull Put Spread on a Feb expiration. You would buy the Feb 45 put for $.25 and you would sell the Feb 50 put for $1.00. This leaves you with a credit of $.75 in your account or actually $75 per contract you trade. The risk of the trade or the amount of money per contract you need in your account is $425 per contract. This gives you a return on investment of 17.5% in how ever many days till Feb expiration.
Lets take it out like a real trade -
It is January 13 and Febuary expiration is in 35 days. You place the trade for 5 contracts. So you now buy 5 FEB XYZ 45 PUTs for $.25 or $125 total and you sell 5 FEB XYZ 50 PUTs for $1.00 or $500 giving you a credit of $375 in your account. Now to back the trade up with collateral in case the trade goes wrong you need to have $2125 in your account for just this trade. If XYZ closes above $50 in 35 days you will have received $375 which is a 17.6% gain. There is a break even price of $49.25 that if the stock closes at this number you will neither gain or lose money. If the stock closes between $49.25 and $45 you will lose some money and if it closes below $45 you will lose $2125.
If you like the idea of knowing exactly what your profit will be, exactly when the trade is closed, and exactly how much money you will risk then credit spread trading is for you. Your profit margins will be between 10 and 20% on each trade and there are techniques for changing your trade if it becomes a losing trade to help you recover some of the loss and in some cases even make it a winning trade again even though you were wrong on the direction of the movement of the stock.
To learn more visit all of the sites I have listed and read the books I have suggested.
OK I know that is very vague, so lets see if I can do better.
It is a trading strategy in which you buy an out of the money option at a certain strike price and then you sell an out of the money option at a different strike price of the same month. As time goes on the options will decay in value and as long as the price of the stock does not go past the sold strike price at the end of expiration you will receive a full credit winning trade.
For example,it is January and XYZ stock is currently at $54 and it looks as if it is bullish or will increase in price over the next month and you firmly believe that the stock will not go below $50. You would trade a Bull Put Spread on a Feb expiration. You would buy the Feb 45 put for $.25 and you would sell the Feb 50 put for $1.00. This leaves you with a credit of $.75 in your account or actually $75 per contract you trade. The risk of the trade or the amount of money per contract you need in your account is $425 per contract. This gives you a return on investment of 17.5% in how ever many days till Feb expiration.
Lets take it out like a real trade -
It is January 13 and Febuary expiration is in 35 days. You place the trade for 5 contracts. So you now buy 5 FEB XYZ 45 PUTs for $.25 or $125 total and you sell 5 FEB XYZ 50 PUTs for $1.00 or $500 giving you a credit of $375 in your account. Now to back the trade up with collateral in case the trade goes wrong you need to have $2125 in your account for just this trade. If XYZ closes above $50 in 35 days you will have received $375 which is a 17.6% gain. There is a break even price of $49.25 that if the stock closes at this number you will neither gain or lose money. If the stock closes between $49.25 and $45 you will lose some money and if it closes below $45 you will lose $2125.
If you like the idea of knowing exactly what your profit will be, exactly when the trade is closed, and exactly how much money you will risk then credit spread trading is for you. Your profit margins will be between 10 and 20% on each trade and there are techniques for changing your trade if it becomes a losing trade to help you recover some of the loss and in some cases even make it a winning trade again even though you were wrong on the direction of the movement of the stock.
To learn more visit all of the sites I have listed and read the books I have suggested.
The Basics
You do not understand what I am saying then you need to go to these links to learn the Basics of Options. Stock options are not as complicated or risky as you have been told. The reason they are risky is because most people lack the knowledge of what they are and how to trade them. The unknown is always risky. So come and learn why I think options are less risk for more capital gain.
- CBOE - The Options Institute
- Chicago Board of Options Exchange - the largest options trading floor in the world has free, self-guided tutorials that teach you the basics of Calls and Puts, the intricacies of the marketplace, and the strategies used by options investors.
- CBOE
- The Options Institue has many different formats in order to learn the basics of Options trading. Some are free others there is a nominal fee.
- CBOE - Options Glossary
- Again in order to learn the basics it is best to go to the source - the Chicago Board of Options Exchange. This is their comprehensive options terms glossary. An excellent resource for the beginner.
- Support and Resistance
- The two most important technical concepts when trading spreads. You must know what hese terms are and definitely learn how to spot them.
- Technical Analysis
- Here is an excellent introduction to technical analysis.
- Fundamental Analysis
- Here is a description of fundamental analysis. However I would suggest purchasing a screener of some kind to do the fundamntals for you. It is just too time consuming unless you really enjoy it. Most of the newsletters and systems I send you to have their own fundamental analysis. Online Options is the easiest and easy to do for yourself if you have too.
My Current Hot List
This is a list of the hottest stocks I am watching. Check out my blog for the latest updates.
- AAPL - Apple Computer
- AMD - Advanced MicroDevices
- ACL - Alcon
- BMHC - Building Materials Holding
- BNI - Burlington N Santa Fe
- THOR - Thoratec
- CTX - Centex
- GOOG - Google
- ECA - Encana
- OEX - S&P 100 Index
- HAL - Halliburton
- ESRX - Express Scripts
- MGM - MGM Mirage
- SPX - S&P 500
- HOV - Hovanian Enterprises Inc
- MOT - Motorola
- NFLX - Netflix
- OSTK - Overstock
- PD - Phelps Dodge
- QCOM - Qualcom Incorporated
- TECH - Techne Corp
- USG - U. S. G.
- X - United States Steel
- RIMM - Research in Motion
- CMI - Cummins
Credit Option Spreads
Fetching RSS feed... please stand byOption Friendly Online Brokers
- Options Xpress
- In my opinion the best. They have the best charting software made available to account holders and it is online so you can take it with you anywhere. Commissions are fairly inexpensive for all the extras you get.
- Think or Swim
- A very good online broker with cheap commissions for those that can only afford a couple of contracts. Excellent resource as well.
Trading Tools
- Stock Charts by Prophet
- Hands down the best charting software available online. If you do not have an Options Xpress account (and these charts are worth it to just open an account) then you need a membership to Prophet. There are other charting software available for your computer but it stays on your computer. I can take these anywhere because it is online.
- Big Charts
- The interactive charts from Big Charts are great for a freebie. You can do many things that the paid charts do. Some people like Stockcharts.com but I think this is easier to use and read.
- Stockcharts.com
- Another online free charting software
- Income Trader's Credit Spread Calculator
- A very valuable tool when trading credit spreads, telling you your risk of investment, rate of return, expected profit, and the all important break even point.
- MarketVue's Calculators
- One of the most important calculators is the probability calculator. This gives you an idea when doing a credit spread the odds or likelyhood that a stock will break a certain price, namely your sold option price.
- Earnings
- Earnings can play havok with a stock if you have a trade that is close to breaking its support or ressitance it will be important to know if earnings are knocking on the door.
- Morningstars ETF screener
- ETF's are another trading tool I use as a long term strategy. I place my earnings from the options trades into the best ETF's I can find.
- Implied Volatility
- Heres a tool to determine the current implied volatility of a stock. Very useful especially when you need to determine the probability of the stock.
- Simple Probability Calculator
- Another free probability calculator. Very important tool!
Stock News
Fetching RSS feed... please stand byPress Releases
Fetching RSS feed... please stand byBlogs and more blogs!
The latest blog postings on trading options from the more popular blogs.
Fetching RSS feed... please stand byMy Personal Favorite Books on Option Trading
A Trader on Wall Street: A Short Term Traders Guide
Amazon Price: $17.95 (as of 09/06/2008)
The Options Workbook: Fundamental Spread Concepts and Strategies for Investors and Traders, 3rd Edition
Amazon Price: $24.06 (as of 09/06/2008)
The Options Course Second Edition: High Profit & Low Stress Trading Methods (Wiley Trading)
Amazon Price: $62.72 (as of 09/06/2008)
Trade Options Online (Wiley Online Trading for a Living)
Amazon Price: $23.96 (as of 09/06/2008)
Charting: An Introduction to Technical Analysis and Its Concepts
Amazon Price: $49.95 (as of 09/06/2008)
Fun games
Stock Rush Board Game
Amazon Price: (as of 09/06/2008)
Cashflow 101
Amazon Price: $219.99 (as of 09/06/2008)
Cashflow 202 - Board Game
Amazon Price: (as of 09/06/2008)
Cashflow for Kids
Amazon Price: $114.99 (as of 09/06/2008)
Amazon's Choices
Options, Futures, and Other Derivatives with Derivagem CD (7th Edition) (Prentice Hall Series in Finance)
Amazon Price: $130.97 (as of 09/06/2008)
Trading for a Living: Psychology, Trading Tactics, Money Management
Amazon Price: $41.25 (as of 09/06/2008)
The Complete Guide to Investing in Short Term Trading: How to Earn High Rates of Returns Safely
Amazon Price: $16.47 (as of 09/06/2008)
Options Made Easy: Your Guide to Profitable Trading (2nd Edition)
Amazon Price: $18.45 (as of 09/06/2008)
Technical Analysis for Dummies
Amazon Price: $16.49 (as of 09/06/2008)
Sell and Sell Short (Wiley Trading)
Amazon Price: $53.55 (as of 09/06/2008)
Let me know you were here
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Ulaanxuu
Great lens! I found lots of useful stuff here, especially because I particularly enjoy trading credit spreads. Like you, I have another profession (wildlife ecologist), and trade options as well (and even have a site about trading options!) Posted August 23, 2008 |
PV
just ran into your site and been here only 10 mins. I am already impressed!. thanks for the tons of links
Posted August 10, 2008
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OnlineTradingRebel
Great post! Posted April 08, 2008 |
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Good information about credit card. That's a 5 star rating from me. You can find all type of credit card news from my lens. If you have some time, please feel free to check it out. Posted December 05, 2007 |
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newoptiontrader
Nicely done, I'm adding you this to my lensroll. Posted December 02, 2007 |
