SIMPLE TWEAK FOR PUT CREDIT SPREADS TO TRIPLE YOUR INCOME (EP. 218)

Introduction

This tutorial will walk you through a simple tweak to enhance your put credit spreads, potentially tripling your income from options trading. Understanding how to effectively use this strategy can help mitigate risks and improve your trading outcomes, especially for those using platforms like Robinhood.

Step 1: Understand Put Credit Spreads

• A put credit spread involves selling a put option and buying another put option at a lower strike price.
• This strategy benefits from the stock price staying above the higher strike price until expiration.
• Key benefits include:
  • Lower risk compared to outright selling puts
  • Limited loss potential
  • Potential for profit from the premiums collected

Practical Tips

• Choose stocks you believe will remain stable or rise.
• Monitor market trends to time your trades effectively.

Step 2: Implement the Tweak

• The tweak suggested is to adjust the strike prices of your options to maximize potential income.
• Instead of selling puts at the money (ATM), consider selling them slightly out of the money (OTM).
• This increases the probability of the options expiring worthless, allowing you to keep the premium.

How to Adjust Your Strike Prices

1. Evaluate the Stock's Current Price: Check the current trading price of the underlying stock.
2. Determine Your Ideal Strike Price: Look for a strike price that is 1-2% below the current price to sell your put option.
3. Select a Lower Strike Price for Safety: Buy a put option at a lower strike price to limit your potential losses.

Step 3: Analyze Risk and Reward

• Calculate the potential maximum profit and loss scenarios.
• Use tools like OptionStrat to visualize your risk/reward profiles.
• Keep in mind the following:
  • Maximum profit occurs if the stock price is above the sold put strike price at expiration.
  • Maximum loss is limited to the difference between the two strike prices minus the premium received.

Common Pitfalls to Avoid

• Avoid selling options on highly volatile stocks without proper analysis.
• Don’t rely solely on historical data; consider current market conditions.

Conclusion

By implementing this simple tweak to your put credit spreads, you can significantly increase your income potential in options trading. Remember to manage your risks carefully and use analytical tools to guide your decisions. Consider joining trading communities for additional support and insights as you navigate your trading journey. Happy trading!