Selling Options Credit Spreads is a low risk strategy that takes advantage of the time decay in Options. I have successfully made at least 10% per month using this strategy.
What is a Credit Spread?
A credit spread is a trade in which you simultaneously sell one option and buy one option for a stock as a single transaction. The options are traded for the same expiration month, with different strike prices and are either both call options or both put options. You write the more expensive option, and buy the cheaper option, resulting in a credit to your account.
Examples:
Bear Call Credit Spread
Trend analysis shows that Stock A is in a strong bear trend. A is trading at $100 per share, towards the end of November.
A credit spread is a trade in which you simultaneously sell one option and buy one option for a stock as a single transaction. The options are traded for the same expiration month, with different strike prices and are either both call options or both put options. You write the more expensive option, and buy the cheaper option, resulting in a credit to your account.
Examples:
Bear Call Credit Spread
Trend analysis shows that Stock A is in a strong bear trend. A is trading at $100 per share, towards the end of November.
TRADE:
Sell A 110 DEC Call for 0.80. Credit $80
Buy A 115 DEC Call for 0.30. Debit $30
Net Credit $50
You keep $50 when the Options expire.
Bull Put Credit Spread
Stock B is in a strong bullish uptrend. B is trading at $100 per share, near the end of November.
Bull Put Credit Spread
Stock B is in a strong bullish uptrend. B is trading at $100 per share, near the end of November.
TRADE:
Sell B 90 DEC Put for 0.80. Credit $80
Buy B 85 DEC Put for 0.30. Debit $30
Net Credit $50
You keep $50 when the Options expire.
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