How to use probability on your side with a 80% chance of success.
Credit Spreads trading explained
Credit spread is a trade when you buy and sell options having two different strike prices. A trader will receive a premium when selling on side of the trade and putting up an upfront cost for purchasing the other side of the trade. ‘Vertical’ in option term means you are building a position with the same expiration months. Credit spread has an excellent built in risk management and requires less margin from the broker as it has a controlled risk mechanism.
With credit spread, even if the underlying remains flat, the credit spread trader receives trade premiums as time-value decay.
Step 1: Screen, filter and pick the best stocks to trade. LiveTradr Elite automatically picks the best stocks or indices out of a basket of 300 stocks listed in the US stock exchange.
Step 2: Pick an expiry date, usually between 20 days to 45 days expiry for a given stock.
Step 3: Choose the type of Strategy and calculate the probability of that trade expiring in the money . LiveTradr Elite takes out the work of probability calculation and pre-calculates all trades before you put up any trades. Select Buy or Sell a Vertical for the system to preset the credit spread trade and edit the price for each trade.
If your trade is a vertical bull spread, choose the probability of 80% of higher the spread expires in the money
If your trade is a vertical bear spread, choose the probability of 80% of higher the spread expires in the money.
Step 4: Calculate your ROI, If you sell a spread for $500 with a margin of $2,000, one trade in a month, your Return of Investment will be 25%.
Step 5: Monitoring your positions. Trading credit spreads are relatively stress free as most the time, a stock price is rangebound. You will only keep an eye on the position to close the position is the underlying comes very close to your closest option (either side). Again, there is only 20% probability this will happen as the system already predicts 80% of the time it will go in the money.
Final Step: once your credit spread expires, repeat step 1-5 and see consistent profits coming into your bank account monthly!