How I made $95,000 in a Month-Sharing my secret of defending a loss making Vertical (Credit) Spread!

Summary

In this video, the trader shares insights on their experience with a Bear Call Credit Spread (BCCS) on SPX, detailing their strategies and adjustments. After an initial trade set up with the expectation of SPX staying below 4000, the market moved against them. The trader strategically adjusted their position multiple times, converting to an Iron Fly strategy and selling additional spreads to minimize losses. Despite a challenging market environment, the trader managed to break even with a small profit, offering valuable lessons on managing risk, making adjustments, and knowing when to exit a position.

Takeaways

• 😀 The trader executed a bear call credit spread on SPX (S&P 500 index) in March 2021 based on inflation concerns and anticipated market resistance at 4000.
• 😀 The initial setup involved selling a 4080 call and buying a 4130 call, with the possibility of a max loss of $10,860.
• 😀 The trader believed that SPX would struggle to break above 4000 due to market conditions, particularly in growth stocks.
• 😀 The market surpassed 4000 by April 2021, invalidating the trader’s initial thesis and necessitating trade adjustments.
• 😀 The trader added a third credit spread and later realized that averaging down was not a good decision.
• 😀 The trade was adjusted to an iron fly by adding a 4080 put and buying a 4030 put, reducing the max loss to $7,380.
• 😀 Weekly options were used to adjust positions, including selling bull put spreads to profit from rising market conditions.
• 😀 Despite the adjustments, the trader exited the trade with a small profit of $274 after making adjustments.
• 😀 The total realized profit for the trader came to $6,634, showing the importance of managing losses through adjustments.
• 😀 Key takeaways include managing buying power, minimizing risk, and recognizing when to exit a trade to avoid large drawdowns.

Q & A

What was the initial trade setup in the video?

The initial trade was a bear call credit spread on SPX (S&P 500 index), with a sold strike at 4080 and a bought strike at 4130. The expiration date was set for May 2021, and the setup was based on the belief that 4000 would be a psychological barrier for the index, which was expected to either move sideways or dip.

Why did the trader decide to make adjustments to the trade?

The trader decided to adjust the trade because their initial market view was incorrect. The S&P 500 broke above 4000 earlier than expected, putting the position in the red. To limit potential losses, the trader made adjustments to reduce exposure and minimize risk.

What adjustments did the trader make to the bear call credit spread?

The trader adjusted the bear call credit spread by converting it into an iron fly. This involved selling a 4080 put and buying a 4030 put, creating a 50-point wide iron fly, which helped control risk and reduce the maximum potential loss.

How did the trader reduce the potential loss after adjusting the trade?

By converting the trade into an iron fly and combining it with a pre-existing bull put spread, the trader reduced the potential loss from $10,860 to $7,380. This helped manage the risk more effectively.

What role did the bull put spread play in the trade adjustments?

The pre-existing bull put spread (3700/3650) played a crucial role in offsetting some of the losses from the bear call credit spread. It was already profitable, and its inclusion helped reduce the overall risk in the position.

What was the final outcome of the trade?

The final outcome of the trade was a small loss of $274, thanks to the adjustments and a bit of luck. The trader successfully minimized the potential losses and was able to exit the position without suffering a significant blow to their capital.

How did the trader manage risk with adjustments throughout the trade?

The trader managed risk by adjusting the position multiple times. Converting the bear call spread into an iron fly and adding additional bull put spreads helped reduce the potential maximum loss. These proactive adjustments allowed the trader to control risk and exit with minimal losses.

What were the lessons learned from this trade?

The key lessons learned include: knowing when to adjust a trade, the importance of minimizing losses rather than chasing profits, and managing buying power effectively. The trader emphasized flexibility and discipline as essential traits for handling difficult trades.

Why is it important to have enough buying power during options trading?

Having enough buying power is crucial for making adjustments in trades. The trader recommends not using more than 50% of available capital in trades to ensure there is enough flexibility to make adjustments and manage risk effectively.

What is the overall takeaway from this trade experience?

The overall takeaway is the importance of adjusting trades when things go wrong. Flexibility, discipline, and managing risk are critical for minimizing losses and successfully navigating difficult trading situations. The trader's goal is to avoid significant losses and stay in the game long-term.