When most traders see a bullish chart they’d like to trade, they’re probably thinking of trading via buying stock (or even calls).

And sometimes that works…But other times the trader will be correct on the direction and still lose money on the trade.

So how do traders overcome this problem? One way is by selling credit spreads!

This trade gives you the ability to make money in up, down, or sideways markets!

And this pattern is so robust, it is one of my go-to trading patterns when looking to get long a stock.

And did you know – by combining credit spread reading with the strategy at Options Profit Planner – I am still able to go through undefeated throughout one of the craziest markets and history.

Which is why today I am going to teach exactly how to get on the right side of the trade and to put the odds of winning in your favor!

 

Options Profit Planner

 

While trading I always try to pick the best strategy for the job at hand…

And if I wanted to get long a stock, I wouldn’t simply by a call…

Insteads – sometime it’s best to select from naked put options when looking for the most bang for your buck.

And a more conservative – a trader could place a credit put spread to get long these markets as well.

Why’s that?

Credit Spreads involve selling a high-premium option while purchasing a low-premium option in the same class or of the same security, resulting in a credit to the trader’s account.

While most options traders are focused on debit spreads, this gives traders a unique advantage when trading credit spreads.

Credit Spreads

 

Credit spread strategies make you money while debit spread strategies cost you money.

And when you are a business owner, you want money coming in and not going out.

But that’s not the only thing that separates the two types of spreads.

A credit spread involves selling a high-premium option while purchasing a low-premium option in the same stock and option type.

A debit spread involves purchasing a high-premium option while selling a low-premium option in the same stock and option type.

 

The Credit Put Spread

Let’s take a look at an example of a credit spread on BAC to place the long/neutral biased trade.

First, when trading a put credit spread you will want to focus on the right-hand side of the options chain. 

 

Source: Thinkorswim

 

Next…the right side of the options chain is where the put contracts are listed in this option chain.

And to complete a short put spread, you would look to simultaneously sell a higher priced strike and sell a lower priced strike

One of the biggest problems new traders have with options is selecting the strike price for the position they are building.

Having problems with finding the strike price? Click here to learn more about which strike prices to choose.

 

The Trade – Credit Put Spread

 

• Sell 21 17 APR 20 @ 1.00
• Buy 17 17 APR 20 @ 0.35

 

Total Risk:  $33.50 / contract

Total Profit: $6.50 / contract

Here is the risk profile on the credit put spread.

 

Source: Thinkorswim

 

From the chart above you can see that if the stock stays above its breakeven, you will see a return on your trade. And if the stock stays above the upper strike, 21, you will collect mas profits.

 

Why Did I Chose This Spread

I choose to use credit spreads over debit spreads because I get paid upfront to execute the trade.

What does this look like on a chart?

 

Source: Thinkorswim

 

As a technical trader I like to structure my trades around patterns and psychological levels to give me the best shot of a winning trade.

In this example, I believe the banks will be bailed out and continue to trade higher in the short term.

Reviewing the trade:

1. The stock is trading at support created from 6 years ago.
2. The stocks are trading under the lower bollinger band levels
3. The Fractal Energy Indicator is trading below lower threshold signaling exhaustion

Now, if you think the stock is going to trade higher, why wouldn’t you just trade long calls?

Next… you want to focus on just the call side when placing that trade

Here’s a long call contract traded:

 

Source: Thinkorswim

 

One of the biggest problems new traders have with options is selecting the strike price for the position they are building.

Are you having problems with finding the strike price? To learn more about which strike prices to choose, Click here

From the chart above you can see that if the stock stays below the breakeven, you may not actually make any money at all.

In fact, you need to be correct about time, direction, and price.

Wrapping up

 

Here at Options Profit Planner, I utilize an options trading style focused around credit trading to generate income for my business.

Since trading is a business I always focus on the money coming in and the money going out.

Now I bet you are wondering what credit trading is

Credit Spreads involve selling a high-premium option while purchasing a low-premium option in the same class or of the same security, resulting in a credit to the trader’s account.

Credit spreads give unique advantages to traders when trading credit spreads, with the most important being that you are paid upfront to place a trade!

And as a business owner, I want to make sure I know how much money I have coming in and out each and every month.

Since running a trading account is actually a business and not a trip to the casino!

To learn the process I use day in and day out to lock in consistent profits, click here to sign up today!