How Do You Scan For Option Trades?
I have been trading credit spreads for about 3 months now with some success. I read the nine part course and realize that my past training didn’t discuss much about selection of trades and adjustment of trades. When I was looking around the website, I saw a brief reference on how you scan for and pick your trade opportunities, how you use the mathematical models with standard deviation to help your selection and how to determine exit points., but there weren’t too many details on these topics. Do you share the information about scans, about the mathematical models and how to use them as the subscriptions move along?
For credit spreads most traders use technical analysis to find support and resistance and use those levels to pick strikes. I have found that, that strategy works except when it doesn’t. support and resistance are guidelines not walls that the stock will not go through and so you will do fine for several months until one month, something happens that was not expected and you lose big on your credit spreads and that wipes out all the profit from the prior months. Credit spreads are pretty dangerous. They are hard to adjust because you are hoping the support stays in place.
For example, I have a credit spread on right now in my personal account. It is a POT Oct 85/80 Put credit spread. So I want Pot to stay above 85 at expiration which is 10 days away. yesterday, POT got to 85 and change. Today it is back to 88.80. So the resistance held,(lucky for me). But if I had tried to adjust the trade I would have gotten killed. Credit spreads, from my experience, are trades you put on, wait and take them off if they are going to be a large loss or a total win. There is not much in between.
Income Strategies and Investments
For the other income strategies, you look for stocks.indexes/etfs that are channeling – moving in a sideways direction. any of the strategies can be used on such a stock. But the best thing to do is to focus on a few – maybe 10 that you get very familiar with and trade those month after month. Blue Chip Dow 30 stocks are usually good candidates – MCD, WMT, KO, PEP, XOM, PG, etc. Their volatility is lower and the prices are high enough to make the options have enough premium to work with.
But stay away from earnings. Don’t do income trades during earnings.
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My experiences of selling directional put or call spread are
1.Market condition.From March to Now,the market has been in a strong upward trend “bullishness” has made it to sell put spread of far enough striking price.Stocks like AAPL and GS are market leaders.Twenty points away are good bets.Low beta Dow stocks like MCD,WMT,KO,PG,CVX,XOM (dead money,but have well defined trading ranges) are also good bets.
2.Chart readings are very important.Support and resistance.I like oversold and over bought conditions for those dead and low beta Dow stocks which I , on the average, make a trade of either selling put spread or call spread every two months for income.But as the market mostly are trending up , this unique market makes it easy to sell put spread ( not last year ).From April to now,I traded at least 50 put spreads.My successful rate has been almost 100%,and I always let them expired worthless.
3.Fundamentals of put spread selling stocks are also very important.Mostly,they got to have steady earnings,history of increasing dividends ( dividends never lie ,especially in difficult times).APPL and GS have been right in a specific right time ( but they dropped dramatically last year,and can happen again if there is a double recession ).
4. I always have reserve funds to buy stocks which I sold put spread,because I love to own them at lower prices.For example , I sold MCD Oct 52.5-50 spread ( 10 contracts for a credit os $350.00.roi of over 10% in 30 days ).Before trade ,I figured it out that I loved to but 1000 shares of MCD below 52.5.I would thank Allen to suggest a MCD butterfly trade when MCD was around 55 in Sept.
5.Directional credit spreads are difficult to get adjusted as Allen has pointed out again and again.They are not suitable for every one with very limited funds. However,if carefully selected and diversified,they can produce sizable income.This month, my trades are AAPL ( 145-150,155-160,170-175),GS(155-160,165,170).MCD (50-52.5),wmt(47.5-45),NEM(41-39),FCX( 60-55),CVX (60-65),PEP(55-57.50) are all likely winners,expiring worthless.
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I just sold to open 10 CVXWM and bought to open 10 CVXWL ( I also own the stock ) for a total credit of $ 350.00).The company announced better earning ahead.Technically,it is poised to break out 72-73 resistance . I expect the spread expires wothless by Nov 21.
Everyone loves it whenever people get together and share opinions.
Great site, continue the good work!