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How To Make A Full-Time Income Trading Less Than Part Time

Big Dogs Exposed

Sound familiar? You have spent years surfing the 'Net, and studying books and charts in search of the straight skinny on commodities futures trading strategies, options trading, or successful stock market trading strategies. All you really want is the 'Holy Grail' of entry techniques. You usually end up adding one indicator on top of another, switching from one guru to the next, until you are so confused and unsure of your entry system that you are unable to make entry decisions and stay organized. You get so distracted and frustrated that you quit watching the markets all together!

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Newsletter: Debit spread beats straight option ...

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Debit Spread Options Strategy

With the debit spread options strategy, you end up carrying less risk than you would by buying an outright option. Such a spread comprises a long option and a short option with varying strike prices, but with the same expiry date.

Here, you would buy a put or call, followed by selling a put or call with a strike price further out-of-the-money (OTM). This tactic offsets the cost and lowers the risk, but minimizes the reward.

When the implied volatility [IV] of a stock’s option is high, you should never entertain assuming a straight long option position – the reasoning being IV tends to revert to its mean, with an ensuing drop in IV being long option-negative, regardless of whether we are talking about a put or call. You can offset the risk associated with IV through the use of the debit spread, while at the same lowering your up-front cost.

When you anticipate that a stock will move higher in price, you would buy its call, and pay a premium for it – thereby benefiting from a rising IV in the process. Conversely, when you expect a stock to move lower, you would sell its call, and collect a premium for it. A rising IV is a negative factor in the latter case.

A debit spread negates the effects of IV. And, by buying an option and selling one at the same time, this approach lowers your entry cost. But, lower risk … lower reward.

With a debit spread, your maximum risk is the amount you paid to get into the trade in the first place. Your maximum reward is derived by taking the difference in spreads and subtracting the debit paid.

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How To Make A Full-Time Income Trading Less Than Part Time

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