Credit Spreads – The FASTEST Way To Grow A Small Account

Alright, listen up! I’ve got something exciting to share with you. We’re talking about credit spreads, and let me tell you, they are the fastest way to grow a small trading account. Options with Davis has this awesome video that explains everything you need to know about trading credit spreads and creating high-probability setups. They cover topics like what credit spreads are, why they’re beneficial for small accounts, trade mechanics, and examples of both short put spreads and short call spreads. Plus, they even mention other related videos on rolling covered calls and the stock repair strategy. It’s a must-watch if you want to learn how to leverage credit spreads for quick growth. Make sure to like the video, leave your comments or greetings, and download the Options Income Blueprint for free. Trust me, you don’t want to miss out on this valuable information.

Credit Spreads – The FASTEST Way To Grow A Small Account

Overview of Credit Spreads

Credit spreads are a type of option trading strategy that can help grow a small trading account quickly. They are also known as short vertical spreads and involve selling defined risk option strategies. These strategies allow traders to take a semi-directional bet in the market, meaning that they do not necessarily have to be right on the direction of the underlying asset. Credit spreads come in two flavors: bullish and bearish. The bullish flavor is called the short put spread, while the bearish flavor is called the short call spread. These strategies offer a high probability trade setup with time decay advantage, making them suitable for small accounts with limited capital.

Benefits of Credit Spreads for Small Accounts

There are several benefits of trading credit spreads, especially for small accounts:

1. Limited Risk: Credit spreads involve defined risk, which means that the maximum loss is known upfront. This is particularly advantageous for small accounts as it helps manage risk and avoid potential catastrophic losses.

2. Ability to Trade on Any Stock or ETF: Credit spreads can be used on any stock or ETF, regardless of the price. The spread width limits the buying power required, making it accessible for small accounts to trade a wide range of underlying assets.

3. Profitability Even with Slightly Wrong Direction: Credit spreads can still be profitable even if the direction of the underlying asset is slightly wrong. This is because the probability of success is high, and as long as the price of the underlying asset stays within the spread width, profits can be realized.

4. Theta Advantage: Time decay, also known as Theta, works in favor of credit spreads. As time passes, the value of options decreases, which benefits traders who have sold options.

5. Position Sizing: Credit spreads allow for proper position sizing based on account size and risk tolerance. With defined risk and limited loss potential, traders can allocate a suitable portion of their account to credit spreads.

Trade Mechanics and Examples for Short Put Spreads

The short put spread, also known as the bull put spread, is a bullish strategy that involves selling an out-of-the-money put option and buying a further out-of-the-money put option to hedge risk. This strategy is suitable when the trader has a bullish outlook on the underlying asset.

For example, let’s consider a trade on the iShares Russell 2000 ETF (IWM). If the trader believes that IWM will bounce back and have a bullish move, they can sell an out-of-the-money put option and buy a further out-of-the-money put option. By doing this, the trader hedges their risk and limits the potential loss.

Trade management is crucial when trading short put spreads. The trade should be managed until expiration, and profit-taking should be considered when the spread has reached a certain level. Trade examples on an oversold market and considering support levels are also discussed to illustrate the effectiveness of short put spreads.

Trade Mechanics and Examples for Short Call Spreads

The short call spread, also known as the bear call spread, is a bearish strategy that involves selling an out-of-the-money call option and buying a further out-of-the-money call option to hedge risk. This strategy is suitable when the trader has a bearish outlook on the underlying asset.

For example, let’s consider a trade on an overbought market. If the trader believes that the market will reverse and have a bearish move, they can sell an out-of-the-money call option and buy a further out-of-the-money call option. By doing this, the trader defines their risk and limits potential losses.

Trade management is important when trading short call spreads. The trade should be managed according to the trader’s style and preference. Placing the short call spread above previous market highs, waiting for the desired market level, and considering weekly options are discussed to optimize the probability and credit received. Proper trade management can result in avoiding losses or maximizing profits.

Other Related Strategies

In addition to credit spreads, there are other related strategies that traders can explore. Rolling covered calls and the stock repair strategy are two examples mentioned in the video. Rolling covered calls involves rolling the option position to a further expiration date or a different strike price to adjust risk and potentially increase profits. The stock repair strategy is used when a trader is holding a losing stock position and wants to recover some of the losses by using options.

Encouraging Viewer Engagement

Viewers are encouraged to engage with the content by liking, subscribing, and sharing the video. They are also invited to leave comments for questions or greetings. Additionally, viewers have the opportunity to download the Options Income Blueprint for free, which provides further information and resources on trading credit spreads and other option strategies.

Conclusion

In conclusion, credit spreads are a powerful tool for small accounts to grow quickly. They offer limited risk, high probability trade setups, and the ability to profit even with slightly wrong direction. Credit spreads can be used on any stock or ETF, and time decay works in favor of these strategies. By understanding the mechanics and examples of short put spreads and short call spreads, traders can effectively use credit spreads to grow their small trading accounts. Additionally, other related strategies, such as rolling covered calls and the stock repair strategy, provide additional opportunities for traders. It is important to engage with the content, ask questions, and continue learning in order to maximize the benefits of credit spreads.