Copyright 2005 William TanMany traders and investors dream about making consistent
profit on the stock market. Typically, investors would turn
to fundamental analysis for medium to long term capital
gains while traders would try to time the market using
technical analysis to spot reversals or advantageous entry
point and exit with the first sign of trouble.
Unfortunately for everyone, the stock market is a zero-sum
game. What this means is that for you to profit someone
else would have to lose. The market exchanges acts like a
distribution center of wealth. Essentially, without
knowing, many novice investors and traders are actually
trading against the professional and institutional traders.
Who do you think will win most of the time? The answer is
obvious. Credit Spread is one of the lesser known trading
strategies available to the options trader. This strategy
is call ?credit spread? because you actually collect your
target profits upfront or a credit when you enter into a
credit spread position. Credit spreads are directional
plays ? bull or bear. The bull spread is called Bull Put
Spread while the bear spread is known as the Bear Call
Spread.
The Credit Spread Option Trading Strategy can be
constructed to be a low risk investment vehicle. Using this
strategy, we are able to use time decay in Options prices
to our full benefit. Time decay works towards our advantage
the closer it is to expiration. With this in mind, time can
very well be our ally in our quest for profit. We just need
to know how to use time to help us.
Fact - about 80% of all options expire worthless, it makes
sense that serious and long term investor should only be
writing credit spreads for a living.
How do we profit from Credit Spread?
Assuming that we are writing a Bull Put Spread:
If the stock moves upwards, we make money.
If the stock moves sideways, we make money.
If the stock moves lower, but is above the strike price
that we sold our puts, we still make money.
I don't know about you, but any trade that lets you earn a
full profit when your stock moves higher, when it moves
sideways, or even when it moves lower enhance your winning
probability. Credit spread writing is a powerful trading
strategy because, if written correctly, it provides room
for error and you would still profit even though you are
wrong.
The closer it gets to expiration (most of the time 3 rd
Saturday of the month), the better it is for us. We make
money using the passage of time. Many seasoned credit
spread traders like to view the 3rd Saturday of the month
as their pay day.
The biggest problem in Stock Options Trading is the race
against time. More than 80% of options expire out-of-money
or, in simpler terms, expire with no value. If you bought
options, this means you would have lost all your money in
the trade. So with this fact in mind, use an Options
Trading Strategy that would put you on the other side of
the table. And that is to use a time profiting trading
strategy called Credit Spread.
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CASHFLOW AVENUE is established to provide Low-Risk Options
Trading Recommendations to the common traders in their
pursuit of financial freedom and a better lifestyle.
http://www.cashflowavenue.com
