How I Trade Cheap Credit Spreads And Only Risk $25 Per Trade
Curious how you can trade cheap credit spreads to generate monthly income? Today, I’m thrilled to share my approach to trading cheap credit spreads and how I manage to limit my risk to just $25 per trade. This is an excellent strategy, and when traded wisely, they can be a consistent source of income.
What Are Cheap Credit Spreads?
Let’s start with the basics. Cheap credit spreads involve strategically placing bets that a stock will stay above or below a certain level. The term ‘cheap’ refers to the distance from the current stock price. The further away you go, the cheaper the credit spread, offering a higher win rate. However, with increased distance comes higher risk. I typically aim for a sweet spot, trading in the $20 to $25 range, balancing risk and potential profit.
My Simple Go To Trading Strategy
Now, let’s dive into the heart of my trading strategy. I use a 10-period moving average to identify the market trend. When the line is blue, indicating an upward trend, I lean towards put credit spreads. Conversely, when it turns white, signaling a downward trend, I opt for call credit spreads. The key is to identify strong support or resistance levels where I believe the stock will stay above or below.
Once I pinpoint a level, I structure the trade, collecting a premium (typically around $20 to $25) for a credit spread that totals $100. This sets my maximum risk at $100. However, here’s the game-changer: I implement a stop-loss strategy. If the stock breaks my chosen level, I exit the trade, limiting my loss to around $30, thus significantly reducing my risk.
Risk Management and My Results
By incorporating this stop-loss mechanism, I’ve managed to transform an $80 potential loss into a $30 loss, making my winners and losers more balanced. While this approach may slightly impact my win rate, the overall result is a more consistent and less stressful trading experience. This risk management strategy has enabled me to generate monthly profits ranging from $3,000 to $5,000.
In conclusion, trading cheap credit spreads doesn’t have to be a gamble. By carefully selecting levels based on market trends, structuring trades for optimal risk-reward, and implementing a stop-loss strategy, you can significantly enhance your chances of success. Remember, it’s not just about winning; it’s about managing your losses effectively. So, go ahead, explore this strategy, and may your trades be ever in your favor!
If you want to trade credit spreads and strangles profitably with a 86%+ win rate and consistently generate monthly income, then join the 10% Credit Spreads program!
Thanks for reading 🙂
Austin Bouley
CEO & Chief Strategy Officer
