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.
One of the key strategies we teach our clients is the Calendar Spread. This spread can be created with either Puts or Calls depending upon the directional bias of the index you are trading. Case in point is a Put Calendar Spread that many of our investors entered this past week on NDX. The index was trading at 4299 and there were indicators suggesting a downward bias for this index. A Calendar Spread utilizes the same strike price but different expirations. It takes advantage of the movement of the index as well as the time decay of the options that have different delta values and expirations. The strike price was selected at 4250 which was almost 50 points out-of-the-money with an expiration date on the short Put that was 2 weeks out and expiration on the long Put that was 3 weeks out. This is a debit spread position with a net debit of $24.70. A Put debit spread is a downward bias position.
What happened next…?
One day later, the NDX moved downward as anticipated by 30 points. This increased the value of the spread which allowed our investors to close the position for $28.00. This represented a net profit of $3.30 or 13.4% in one day!
What Happened Next…?
Some of our investors chose to keep the position longer in an attempt to gain a larger profit. Those that did actually benefited. Some closed the position later in the day for $30.10 which was a greater profit than those who closed at $28.00. There is no one perfect answer. Our stance is that you can never go wrong by closing a position for a profit! Do what you think is best or your account and never look back!
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