05-06-2020, 11:27 PM
(05-06-2020, 08:03 PM)john Wrote:First of all don't listen to my bragging. I have had very good luck but I will lose one eventually. IMO it's not as conservative as a covered put or call. If you ever try it I suggest you paper trade it numerous times.(05-06-2020, 03:58 PM)fenders53 Wrote: Closed my CBRL credit spread for an 85% gain well short of expiration date. I'm still undefeated at this strategy. On the prowl for my next short victim.
What is a "credit spread"?
Mike gave the definition. It can be used to go short of long. For shorting I try to find a stock that I believe I know the approximate upper resistance on, getting overbought and no fundamentals to back up the run. Traders have been running CBRL up and down. When it was around 95 I sold calls at 100 and bought them at 105 for an immediate credit. 100 and below at expiration I keep all the money. Lose from 100 to 105 minus the credit already received. Loss is capped at 105 as I own a 105 call. You have complete control of your max win or loss by choosing the strikes. And of course you can close it anytime.
The bad news is the max loss is higher than max possible gain. Not technically unlimited like simply shorting shares though. As I said, not all that conservative. I do it rarely and only with a stock that I follow the story on. Certainly wouldn't do it with an upcoming earnings report. A stock like WEN might be a target. TSLA or any other Momo stock absolutely not. You could set this up for a 95% chance of a win, and the net premium credit would be so small it wouldn't be worth the bother.