Case Study of the Week
This case study is based on actual trades using the strategies taught by the team at Options Money Maker. Our focus is to teach traders a consistent and conservative approach to trading credit spreads, debit spreads and other combination spread strategies to earn higher than average returns.
We believe that there is no better manager of your money than you, armed with the education and experience to create great returns and do it with peace of mind. We also believe that there is no better way to learn than to “mimic the masters” and then actually do it yourself! These case studies are designed to be a supplement to your education and show you real examples of the trades we open, close and adjust while minimizing risk, eliminating fear and growing a big account.
Slightly green bananas have a forgiveness factor. If you don’t have a chance to eat them right away their value actually improves because they ripen with age. Forgiveness factors are also in play when we coach our investors on how to establish a Calendar Spread and understand the logic behind it. We shared a trade with our investors; a Put Calendar Spread on NDX. A Calendar Spread is a debit spread using the same strike prices but with different expiration dates. We selected a Put Calendar Spread because that type of position benefits from a downward movement in the index and our chart indicators were showing a bias to the down side. We selected strikes that were 65 points out of the money; 4350 with the index trading at 4415. We bought to open the 4350, 3 weeks out and sold to open the 4350, 2 weeks out.
What happened next…?
This position can create a profit in a couple of ways. If the index moves down, a profit is generated because of time value decay on the short Put and the long Put increases in value as the index moves down. In the event that the index moves upward, investors can still harvest profits from the short Put while keeping the long Put, which they still have time to manage. It is always difficult to explain to your neighbors why you are rooting for the market to decline!
What Happened Next…?
Over the next two days the NDX moved down 70 points. This is not an unusual move for this particular index. Some of our investors chose to close the position and take a profit. Others chose to hold the position longer to allow for additional time decay and a further move to the downside. It is great to have choices! There is no right answer. Do what you think is best for your account and never look back!
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