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.
If you thought last week was chaotic, how about another week in the market of 500 point swings in the DOW in one day, gloom and doom from the “talking head experts”, predictions of market meltdown…all makes most investors feel like they are dangling off a cliff. What did the Masters at Options Money Maker do this week? We 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…it has just done it more frequently and more dramatically in recent weeks.
Case in point…our investors opened a Put Credit Spread on SPX with 4 weeks to expiration at strike prices of 1845/1850 when the index was trading at 1900. We received $1.20 credit and this position was an upward bias position. A profit is created by either a move upward in the index or time decay from being “out-of-the-money” or a combination of the two. A review of the charts indicated that the index was at a natural point of support and that a move upward was anticipated next.
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 unanticipated move was going totally against the reasons we opened the position. Did we panic and close the position for a loss? Absolutely not! 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 1905 in just two days totally reversing the “paper loss” in the position and placing our investors back in a situation where their position was significantly out-of-the-money again. Now we simply wait for further time decay to occur to allow us to close the position for a profit. 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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