Credit spreads, specifically Bear Call Credit spreads and Bull Put Credit spreads are two of the most popular options strategies in the market. These leveraged positions allow investors to take in regular double digit percent returns while only risking a fraction of the cost to invest in other strategies.
With the increase in the number of securities offering weekly options, investors can now generate more income with these popular spreads on an annualized basis. There are roughly 400 stocks, indexes and ETFs offering weekly options, and 85% of those securities offer what are called continuous weekly series, which have options available for each week for up to 7 weeks out in time.
Trading weekly options takes some special tactics. Because of the shorter time periods of the trade, both the net credit and the short term return are smaller. Therefore, it is important to have lower transaction costs.
Another tactic is to trade against higher priced securities because the fixed cost of the transaction fees will generally be a smaller percent of the net credit received. It is also advantageous to target stocks with higher volatility, which increases the premium values and, therefore, higher net credits. Examples of the kind of stocks that meet these criteria are:
It is also important to make sure you are looking for the right securities based on the trade sentiment and that you have a good probability of the spread expiring worthless. The pre-set parameters in PowerOptions already have many of these criteria established when using the "Weekly Bear Call Spreads" or "Weekly Bull Put Spreads". In just seconds the entire market is screened using 2 clicks and a list of candidates will be displayed:
If you are not already signed into the site... Log on to PowerOptions
Click either Bull Put Credit tab or Bear Call Credit tab
Click Search. Here's what you'll see...
As you can see from the search report above there are many opportunities to get 11-20% returns in only 8 days using weekly's for your Bull Put Credit spreads. You would see similar results for Bear Call spreads.
Invariably someone will ask, "But the stock I am interested in, did not appear". Generally it is because that stock did not meet the screening criteria. No problem!
Click the Bull Put Credit or Bear Call Credit tab and then "Spread Chain" - This Signature PowerOptions tool will allow you to look up credit spreads one stock at a time. You can limit the results by selecting the desired expiration date, minimum net credit, range OTM and minimum probability. The spread chain also uses the mid-point calculation so you know you are getting the best potential price for your spread. This tool will really enhance your spread trading returns.