I am always impressed by traders' emotional attachment to their positions. I too at one point was passionate about the companies and indices I bought and sold.
It took a while but after being betrayed over and over again (and losing lots of money) from these companies, I woke up.
I was not going to be successful by attaching myself to a company that I had no control over. So I embarked on a search to find a way to consistently profit in the market, just like I’ve seen many others do. I wasn’t looking for a “get rich quick” scheme, but I wanted a strategy that would allow me to remove my emotions from the process. I had reached my tipping point and my emotions could no longer be another derivative of the market.
I played around trying different models and methods, all with the effort of finding something with consistency. I wanted to build wealth over time, not win the lottery.
I was then introduced to trading Credit Spreads. If you’re unfamiliar with Credit Spreads, then you need to start googling or reach out to me asap (contact info below), so that you can quickly become familiar.
In the most simplistic terms, I sell an option spread and take in a premium. If my thesis is correct, then I get to keep the premium.
Let me give you a real example that just played out over the last couple weeks for me:
I took a trade long VISA via a credit put spread Aug 170/165.
For this trade I took in a .24 in premium.
I also sold a 170/165 put spread expiring this week (Aug, 16, 2013). Visa was 181 at the time I took the trade.
If this was Friday already, then I would have profited the whole .24 premium that I took last week.
During my investment, all I cared was that Visa did absolutely nothing. I needed it to stay right about where it was and away from my short leg of 170. It could go to the moon for all I care as long as it didn’t crash. It can even go down a bit and I wouldn't care too much either.
The most important point is that I am completely unattached to the company from an emotional perspective. I’m not even too worried about reading the latest news on the company. I just have to keep an eye on my spread.
Now, I’ll be repeating the process for September and going long on VISA with another credit put spread. Below, you can find the new credit spread trade that I made for VISA and you can follow along as it plays out.
You can find this trade and a whole lot more on my site. If you want to reach out to me, then subscribe to my premium alerts and analysis newsletter. Everyone who subscribes has direct access to me on a real time basis. No question ever goes unanswered.
I’m so confident that this will not only improve your returns but also improve your life that I’d like to buy half the cost to your first month.
In the meantime, here is the trade that I am now taking for Septemeber:
SEP VISA credit put spread 160/155 (so sell 160put and buy 155put behind it).
- PAYOUT: Paid me .34 per contract. Now it pays about .28
- CHANCES: 92% chance of complete success (where I keep the whole .34)
- PAD: the buffer from current price to short strike of 160 is about 10%
- Has recently been tested so I feel like we got a peek at worst case scenario of 170ish
- Has a void under its well-established up channel in 2013. This scares me a bit BUT
- I am going down with my position to the 200day moving average, which has not been tested in over 2 years.
- Also, we have the 100-day moving average, which has served as solid bounce level. So, unless the markets fall apart Visa should hold up.
- Furthermore, the second smaller chart below shows the market profile, which tells me that markets price action thinned out at 171 recently. This gives me further support.
- RISKS: this seemingly slam-dunk way of generating income comes with risk. The good news is that it's defined risk. In this case it's $5 less the premium taken in. Now this sounds big BUT the risk of loss is smaller than any other form of trading that I know. Where else can you get a 95% theoretical chance of success on your trade?
- HEDGE: Also, I intend to add a hedge to my trade by adding a short position to this long thesis. I plan on shorting VISA via a Sep Credit CALL Spread at 200. For this I collect an additional .23 so the total trade will bring me .50 with a 95% chance of success. All I need is for VISA to stay between 160 and 200 until mid September.
- RISK MANAGEMENT: all along the way, I monitor the trade not to let it out of control. I can adjust it up or down or even buy it back should I find that my thesis is no longer valid.
Nicolas Chahine is a former CFO for a successful web startup. He now manages his own fund, which is built around his credit-spread trading strategy. He is the mind behind the “Mastering Credit Spreads” online course and “Create Income with Credit Spreads” newsletter on Marketfy.com.
THIS IS NOT A TRADE RECOMMENDATION OF ANY SORTS. THIS IS MY TAKE ON A FEW FACTS SURROUNDING THE TICKERS I MENTIONED. TRADING OPTIONS IS DANGEROUS AND CAN CAUSE TOTAL DESTRUCTION. I ONLY RISK MONEY I CAN AFFORD TO LOSE. EVERY TRADE HAS THE POTENTIAL TO BE A COMPLETE LOSS AND WITHOUT NOTICE.