Stocks And Money Information

Generate Consistent Stock Market Profit Through Credit Sprea

Copyright 2005 William Tan Many traders and investors dream about making
consistent profit on the stock market. Typically, investors would turn to
fundamental analysis for medium to long term capital gains while traders
would try to time the market using technical analysis to spot reversals
or advantageous entry point and exit with the first sign of trouble.
Unfortunately for everyone, the stock market is a zero-sum game. What
this means is that for you to profit someone else would have to lose. The
market exchanges acts like a distribution center of wealth. Essentially,
without knowing, many novice investors and traders are actually trading
against the professional and institutional traders. Who do you think will
win most of the time? The answer is obvious. Credit Spread is one of the
lesser known trading strategies available to the options trader. This
strategy is call “credit spread ” because you actually collect your
target profits upfront or a credit when you enter into a credit spread
position. Credit spreads are directional plays – bull or bear. The bull
spread is called Bull Put Spread while the bear spread is known as the
Bear Call Spread. The Credit Spread Option Trading Strategy can be
constructed to be a low risk investment vehicle. Using this strategy, we
are able to use time decay in Options prices to our full benefit. Time
decay works towards our advantage the closer it is to expiration. With
this in mind, time can very well be our ally in our quest for profit. We
just need to know how to use time to help us. Fact – about 80% of all
options expire worthless, it makes sense that serious and long term
investor should only be writing credit spreads for a living. How do we
profit from Credit Spread? Assuming that we are writing a Bull Put
Spread: If the stock moves upwards, we make money. If the stock moves
sideways, we make money. If the stock moves lower, but is above the
strike price that we sold our puts, we still make money. I don ‘t know
about you, but any trade that lets you earn a full profit when your stock
moves higher, when it moves sideways, or even when it moves lower enhance
your winning probability. Credit spread writing is a powerful trading
strategy because, if written correctly, it provides room for error and
you would still profit even though you are wrong. The closer it gets to
expiration (most of the time 3 rd Saturday of the month), the better it
is for us. We make money using the passage of time. Many seasoned credit
spread traders like to view the 3rd Saturday of the month as their pay
day. The biggest problem in Stock Options Trading is the race against
time. More than 80% of options expire out-of-money or, in simpler terms,
expire with no value. If you bought options, this means you would have
lost all your money in the trade. So with this fact in mind, use an
Options Trading Strategy that would put you on the other side of the
table. And that is to use a time profiting trading strategy called Credit
Spread.

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