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Trading credit spreads is a very popular strategy among “income-based” traders, as credit spreads have limited loss potential and a high probability of profit.
However, high probability strategies come with a cost, which is unfavorable risk/reward. Typically, credit spread options strategies will have far more risk than reward, which means many profitable trades can be wiped out by one unprofitable trade.
In this video, I share my analysis of a put credit spread strategy applied to the S&P 500 ETF.
We’ll explore the historical performance of simply selling put spreads in SPY every single month. After analyzing the results with no trade management, we’ll look at the implementation of profit targets, stop-losses, and strategic entry filters to help improve the strategy’s performance.
Lastly, I discuss exactly how to size credit spreads as part of a long-term systematic trading plan. I’ve included a final put spread strategy with various trade size allocations, as well as the historical performance of the strategy when using these allocations.
My hope is that this research will help open your eyes to the true nature of the “high probability” options trading world, the downsides that come with it, and how to work with these downsides to produce positive trading results long-term.
Be sure to leave a comment down below with any questions you may have!
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Link do Vídeo
✅ New to options trading? Master the essential options trading concepts with the FREE Options Trading for Beginners PDF and email course: https://geni.us/options-trading-pdf
See and this is just one strat, imagine doing the inverse when VIX is up?
Hi Chris, I am from Papua New Guinea I am trying to open a with Tasty works but could not please help me to open an account with Tastyworks, anyway I have downloaded 20 0f your videos on credit spread and training using your videos
options tooo complex. forex and cod trading is as simple as it gets. plus ur profits are much higher than options considering you put on a lot on options. 500risk on GBPAUD with a fix stop loss ( with a good strategy like SMC can fetch you 1:10 within a short period of time as compared to options. which due to the time frame of the option strike price n all u have to put up more risk. but I am still exploring options
I’m more interested in bull vertical put credit spreads but your video is not VPCS, I think. Am I wrong?
What about gamma and closing positon 21 days before expiration? Have you looked into those stats?
Nice video! I like quantitative approach to analyzing strategies.
The only thing it lacks is comparing its performance to SP500 index.
Anyway, Great job!
Fantastic video. Thanks for sharing such insightful information. Keep up the great work!
What was the average duration of each trade? I.e. how long did it usually take for the profit to hit 75%? Thanks!
Hi Chris. This is a great video. Just a quick question: where did you access the option historical data for this back test? Thanks a lot!
What about selling put spreads during low VIX and call spreads during high VIX?
How did you get the max loss per put spread of 1,500? 20:37
Hi Chris, what software do you use for your backtesting?
Wonderful video! The plan appears sensible and easy to implement. Is it possible to know how it performed in 2021?
Man, this is excellent!
I wonder if you can keep the -100% stop loss and re-enter the spread when the price recovers stability?
How did you run the test?
The math at 5:15 is wrong. Max loss should be (Spread width – Premium received) X 100. Without the brackets you are getting a very different number.
I disagree with your first slide on the SPY puts being catastrophic. If im selling a put im looking at a good etf or a good stock with great long term potential. Either collecting premium or getting assigned, if you hold those 100 shares you will do just fine selling those shares at higher price. I treat selling a put assignment like an entry and selling a call as an exit or take profit. only for good long term stock or etf of course.
Hi, great video. Let me ask you this, supposing you are in a SPY bull put with an original VIX level at 25%. If the VIX goes, say to 35% while you are in the trade, what would you do? a) Nothing, just follow your strategy b) close the trade. Thanks
Options works fine until they don’t
This guy is really good at explaining stock options. I've watched so many of his videos over about 2 months. I have learned so much. I recently started trading options and have done very well with his advice. I like in this video he says if those gains are not good enough for you I don't know what to say. Lol !!! It's true this is not a get rich quick thing. If you can get a 30% return or better in a short amount of time ( a week or a month) that is amazing. Anyway thank you for the videos. Your videos have helped me make a few extra bucks a month. I pray that God will bless you for all the people you are helping with your knowledge.
I always hated that Tasty trade performs very small analysis usually avoiding market crashes and data sizes. This seems like a much more comprehensive analysis and therefore a much different methodology such as selling with low VIX.
I'm sure this is subject for debate, but by using a fixed % allocation, you've included position sizing on top of a standard backtest. Big drawdowns earlier in the trade are therefore muted (although this one had a big drawdown later in the sequence as well). Doing it this way does not really seem to allow for an apples-to-apples comparison throughout because the position size varies. What are your thoughts on this? I don't believe any money management approaches can make a negative expectancy trade profitable, but different money management approaches can make degree of profitability appear different. How do you weigh in on all this?
I wonder how well rolling the spreads out will work when the trade moves against you as opposed to just eating the loss. For example, if a stock is over sold and is likely to recover, it would make more sense to roll the spread and take a small loss or even roll it for a credit if your lucky and just have the new spread expire worthless as the stock recovers. This way you can avoid taking massive losses when the decrease in the stock price isn't really justified or supported by any of the company's fundamentals.
18:50 I recently watched your Iron Condor management video and the conclusion there was that VIX >23.5 yielded the best results. Why is it different here?
It would be interesting to see the results from other deltas i.e. 20%, 10%
Did you do same back test on selling call credit spreads ?
I feel like I'm missing something so can you clarify for me possibly? Let's say we collect $300 premium as a Max reward. Profit Target = 0.75 * 300 which is $225. Max Loss is 150% so $750. With the success rates you mention. (225 * 76) – (750 * 24) is a net negative at -225. How then is the trade profitable? Am I missing something?
Is it true that market makers can see the stop-loss thresholds of retail traders and induce fake dips and pumps to trigger SL's and frustrate the common man?
what software are you using to backtest?