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.
You don’t have to be Albert Einstein to recognize that the market has still been behaving in a rather choppy, chaotic manner. If you listen to the news, some so called “experts” say the market is on its way down while others are calling for a rebound. What did the Masters at Options Money Maker do this week? We ignored the news and simply guided our investors through another week of making money and taking advantage of market volatility and the cyclical ups and downs. We know the market moves up and down so how do we position ourselves to win?
The Iron Condor is a great strategy that we use to make profits regardless of the direction of the market. The main concept is to create a Put Credit Spread and a Call Credit Spread with a “sweet spot” that takes advantage of the time decay of options to create profits. Many of our investors recently opened an Iron Condor on SPX with 4 weeks to expiration. The Call strikes were 1975/1980 and the Put strikes were 1855/1860. This trade was opened when the index was at 1900. We received $1.40 credit for the Call spread and $1.25 credit on the Put spread for a total of $2.65. If both positions remain in the sweet spot until expiration, our maximum profit would be $2.65 as both spreads would be out-of-the-money and expire worthless. We very rarely hold positions to expiration. We look for a reasonable profit in the shortest period of time possible and then bring the capital back into our accounts to open fresh positions. You can never go wrong taking a profit and moving back to a cash position!
What happened next…?
The market reacted to more news and the SPX moved down 90 points to 1810 over the course of only a couple of days. This move down allowed us to close the Call Credit Spread for $.60 which was a profit of $.80 or 22% on cash at risk after only 2 days. We were now left holding the Put Credit Spread which would benefit from a move upward in the index. We had built 4 weeks until expiration into this position, allowing for adequate time for many cycles to occur during that period. We relaxed, did nothing and waited because we had the luxury of time and the peace of mind of management techniques to adjust this position if the market continued on a downward path.
What Happened Next…?
The SPX moved from 1810 to 1870 in just three days, once again, placing the Put Credit Spread out-of-the-money. The strike price was $1.25 which placed us back in a break even position on this spread. Now our investors have several options and they did not all take the same path. Some closed the Put Credit Spread at break even, took the previous profit and all the original cash back into their account and moved on to the next position. Others simply held the position for further time decay to occur to allow for a profit. Others added a Call Credit Spread to once again establish an Iron Condor Position. Patience is a virtue in trading as long as you know what to do and when to do nothing. It is very difficult to be patient when you don’t have the knowledge and tools to succeed in a fluctuating market. As a result, many investors trade on emotion and end up losing money on a regular basis.
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