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www.simpleoptionstrategies.com
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CONTENTS
SPX CREDIT SPREAD TRADE STRATEGIESGeneral Risk Management Rules
Pre-Market Routine
Post-Market Routine
SPX 0 DTE TRADEDescription
Entry
Trade Management
Exit - Take Profit
Exit - Adjustment or Roll
Exit - Stop Loss
SPX 7 DTE TRADEDescription
Entry
33
4
4
55
5
6
6
6
6
77
7
Trade Management
Exit - Take Profit
Exit - Adjustment or Roll
Exit - Stop Loss
7 DTE Trade/Adjustment
SPX MONTHLYDescription
Entry
Trade Management
Exit - Take Profit
Exit - Adjustment or Roll
Exit - Stop Loss
8
9
9
9
9
1010
10
11
12
12
12
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SPX CREDIT SPREAD TRADE STRATEGIES
1. Always trade with a plan
2. Determine Max Loss and Risk/Reward before entering trade
3. Trade no more than 20% (Credit Margin) of Trading Capital
4. Do not allow more than a 2% loss/trade based on Trading Capital
5. For highly trending market, position trades to follow the trend
6. Never hold short term credit spread overnight
7. Size your trades to ensure emotions are not part of the decision making process - Trade small, trade often
8. If a position requires to be rolled, do so at least 3 days to expiration
GENERAL RISK MANAGEMENT RULES
SPX 0 DTE(0 Days to Expiration) Trade
A
SPX 7 DTE(7 Days to Expiration) Trade
B
SPX MONTHLY(30 to 45 Days to Expiration) Trade
C
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Review US Dollar ($DXY) for price action that can
move the SPX
Since over 40% of all S&P 500 companies derive
their revenues from outside the US, a weak dollar
tends to favor SPX firms. And a strong dollar does
the opposite.
Review 10 Year Treasury (TNX) Rates for price action
that can move the SPX
Treasuries, complete for investment funds so when
treasury rates are high, there is a tendency for
money to shift from stocks to bonds. The opposite
is true when rates are low.
Review / ES (Futures) Trending Direction
While the SPX opens at 9:30 AM and closes at 4:00
PM Eastern, the futures markets are trade from
6:00 PM on Sunday to 5 PM Friday. Understanding
the trend and support and resistance areas are
helpful when deciding the direction of the market
during normal business hours. You will want favor
the direction of the futures market when selecting
your positions.
Review VIX level and Changes
The VIX is the volatility indicator for the SPX.
Higher volatility increases the premium prices for
SPX calls and puts. So you will want to place credit
spread trades when the VIX is higher and close
credit spread trades with the VIX is lower.
Determine Credit Spread Positions and Save in TOS
For 0 DTE trades, it is important to select the
positions you will want to use prior to the opening
of the market. I select two call credit spreads and
two put credit spreads and save the positions so
that I can quickly place my trades when the market
opens.
PRE-MARKET ROUTINE
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Update Trading Journal and review trades
Determine tweaks if adjustment to trading plan is necessary Maintaining a
trade journal is important so that you have a history of your trades. What
you did right and wrong in accordance with your trade plan is important so
that you know what to do to correct mistakes.
Determine if rules were broken and why
Discipline in trading is very important. So having a rules based approach
will improve your trading performance. Acknowledging rules that were
broken and why will allow you to face your mistakes and to work your way
back to following your trade plan.
Determine if risk was within acceptable levels especially for wins
Trading is about taking acceptable risks in order to achieve success
so reviewing those risks to ensure that they are within acceptable
levels keeps you in check. At times you may take risks that allow you
to earn greater returns but that’s when complacency sets in and that
unacceptable risk may come back to bite you. As a trader you need to
constantly check that your risks remain within acceptable limits based on
your trade plan.
Determine if losses were within acceptable ranges
On the opposite side of greed is fear. When we take a loss that may be
larger than usual, fear may set in and on your subsequent trades you may
start taking losses to overcorrect your large loss. That may lead to a string
off losses that negatively affects your trade performance. This is just
another area that you may need to adjust to bring your mindset into the
proper balance.
Determine tweaks if adjustment to trading plan is necessary
Over time, market or trading conditions may change over time. Or you
may learn better ways of increasing the performance of your trades. It is
important that your trade plan be a living document that periodically gets
adjusted based any changes in the market or trading techniques that you
have learned.
POST-MARKET ROUTINE
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1Enter ½ position first, then the remainder of position after
directional confirmation. You may also enter full position but does introduce additional risk
2Entry may be done within 5-10 minutes after the market opens to catch
higher volatility levels or when trend has not been clearly identified, waiting for market stabilization is acceptable and at times preferable
4Premium should be between .35 - .70… or less if you choose to be a greater
distance from the market . The use of wider spreads (10 to 20 points) can be used to gain greater distance from the market to lower your risk.
3 An alternate entry may be when a short term reversal has been identified
5 Ensure support and resistance levels are clearly determined
ENTRYSPX 0 DTE TRADE
1. The trade is made up of either a call credit spread, a
put credit spread, or both using an Iron Condor
2. Trade is entered on the day it expires and considered
a day trade if closed before it expires
3. It is a high probability trade since it is suitable for a
range bound market, where market spends 80% of
their time
4. Max loss and margin requirement can be significant
5. Risk/Reward is very bad since it is a credit spread
and max gain is the initial premium collected and
max loss is the difference between the short leg
and long leg times the number of contracts minus
the credit received
6. Exit strategy using stop losses must clearly defined
and planned for to avoid large losses
7. Can be stressful to trade but if managed correctly
can be highly profitable
DESCRIPTION
A
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After trade initiation and if market is range
bound or trending away from spread, no action is necessary other than
monitoring points of support and resistance in
case of breach
Based on certain market conditions or premium
price, it may make sense to decide on exit price in preparation to close
trade
If trade moves against a favorable trend, decide
on whether to close trade if already profitable
or hold until a positive reversal or breach
identified exit point
If you are not able to manage trade due to other commitments, it is best to close the
trade to prevent a large loss
TRADE MANAGEMENT
• For a range bound market, closing a position for .20 is advisable since it will take more time to achieve profitability
• For a trending market on the right side of the trade, the trade will have a high probability of closing for .10 or .15
• Allowing the trade to expire or attempting to close the trade for .05, is not advisable since time adds risk but if you are monitoring and able to ensure it that the market will not breach the short leg of the spread, it is acceptable
EXIT: TAKE PROFIT• Market immediately moves against
trade after trade initiation
• Identified breaks in support/resistance of a 5 minute closed candle
• If market reversal occurs that can be identified by 2 or 3 point trend line on the 5 minute chart, immediately exit the trade and assess
EXIT: STOP LOSS• Highly inadvisable
EXIT: ADJUSTMENT OR ROLL
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1Enter with a ¼ position and after two or three days, add another ¼ position using different strikes based on the deltas and expiration dates. Continue this process until a full position has been reached
2The reason for starting with a ¼ position, is so that the chances of managing a large position that aggressively moves against you is
much lower
4Use a Delta of -.10 to -.12 for bull spread and .07 to .10 for bear spreads - a premium of .30 to .45 for a 5 wide spread or .50 to .70 for a 10 wide spread
should be targeted. Using wider spreads reduces risk since that creates additional distance from the market using the same premium price
3Entry should be done when there is a relative increase in volatility -
during market rallies, wait for pullback to enter and during those times only a bull spread
5 Under favorable market conditions, multiple expirations can be entered but it is advisable to not exceed more than three at one time
ENTRYSPX 7 DTE TRADE
1. The trade is made up of either a call credit spread, a
put credit spread, or both using an Iron Condor
2. Trade is entered on days of relatively high volatility
and typically exited on days when volatility is lower
and when price target is achieved
3. Trade is adjusted when the short leg of either spread
comes within 20 points of the market price and 50
points when the VIX is higher than 30
4. During times that markets are rallying, it is advisable
to place only put credit spreads on market pulls back
5. For larger positions, debit spread hedges one
quarter the size and 5 points above the call spread
may be used for the call credit spreads to cover
exposure for strong market rallies
6. If placing a trade on a day that 7 DTE is not available,
it is better to place the trade using 8 DTE
7. It is advisable to not use a Monday expiration date
since the position may need to be closed when the
there are 0 days to expiration
DESCRIPTION
B
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After trade initiation and if market is range bound or
trending away from spread, no action is necessary other
than monitoring points of support and resistance
areas in case position becomes threatened
In the case of an Iron Condor, adjust both
spreads taking profit in the spread not threatened
and entering a debit spread for the spread that is threatened moving both
to an expiration that is three to seven days out
If one of the short legs of the trade comes within 20 points of market price or 50 points when the VIX
is over 30, prepare to roll your position(s) to achieve balance (equal distance of each short leg to market)
- adjust before trade reaches 1 DTE
The goal is to achieve a credit or break even but
there are times where it may be necessary to
provide additional distance from the market and it
would be acceptable for the adjustment result in a
debit
Positions that have been adjusted have a tendency
to be adjusted multiple times due to the goal of
achieving a credit or break even as a result of the
adjustment
If the market moves aggressively against the put credit spread (pcs), follow the
same process as mentioned above, and add a ccs if one is not already part of the trade. Managing a pcs that is threatened,
is less costly, due to higher volatility, than a ccs. So consider only trading pcs’ only since markets spend most of their
time moving sideways to up
If the market moves aggressively against the call credit spread (ccs), it is very important to aggressively
adjust the trade in the direction of the market early and often and not allow
the spread to go ITM. That means that taking a credit or breaking even may
not be possible. Use the put credit spread to finance the ccs cost
TRADE MANAGEMENT
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• An acceptable profit is fifty to eighty percent of credit received or greater if market conditions are favorable
• For positions that have been rolled or adjusted, profit target should be twenty to fifty percent of credit
EXIT: TAKE PROFIT• It is not necessary to use stop losses to
exit this trade
EXIT: STOP LOSS• Refer to Trade Management Guidelines
and example adjustment below
EXIT: ADJUSTMENT OR ROLL
7 DTE TRADE/ADJUSTMENTHere is an example of a trade adjustment for a 7 DTE Trade.
In this case the market move higher the day after the trade was initiated. As you can see, both the call spread and put spread were rolled up and out. The call spread was rolled 20 points higher for a debit of $.35. The put spread was rolled 10 points higher for a for a credit of $.30 So the total cost of the roll was $.05. The position was closed at $.20 for a total profit of $.60 including the adjustment.
3028
2997
7/26 7/29 7/30 7/31
3020
7/24
2997
3005
7/23
2989
BTC 5 SPX 31 JUL 192955/2950 PUT @.10
STO -5 VERT ROLL SPX 31 JUL 19/29 JUL 19 2955/2950/2945/2940 PUT @.30
STO -5 SPX 29 JUL 19 2945/2940 PUT @.45
BTC 5 SPX 31 JUL 193055/3060 CALL @.10
STO -5 VERT ROLL SPX 31 JUL 19/29 JUL 19 3055/3060/3035/3040 CALL @-.35
STO -5 SPX 29 JUL 19 3035/3040 CALL @.40
CLOSED TRADE FOR .60 PROFIT
PAID.05 TO ROLL
COLLECTED .85 PREMIUM
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1 Entry should be thirty to sixty days prior to expiration
2The ideal way to enter the position is to leg in with a quarter
position during relative increases in volatility and add to the same strikes or other strikes using the deltas listed below to reduce risk
4Bear spreads should be entered cautiously with a hedge using a debit spread 5 points above the long position of the spread and
one quarter the size of the call credit spread
3 Ideally the trade is entered during periods of high volatility and exited during times of low volatility
5 Use a Delta of .10 to .12 for bull spread and .07 to .10 for bear spreads - a premium of .30 to .45 should be targeted
ENTRYSPX MONTHLY
1. The trade is made up of either a call credit spread, a
put credit spread, or both using an Iron Condor
2. Trade is entered on days of relatively high volatility,
30 - 60 DTE and typically exited on days when
volatility is lower and when price target is achieved
3. The trade is adjusted when the short leg of either
spread comes within 1.5% to 2.5% of the market
price. Higher percentages should be considered
when the VIX is higher than 30
4. During times that markets are rallying, it is advisable
to place only put credit spreads on market pulls back
5. For larger positions, debit spread hedges should be
used for the call credit spreads to cover exposure
for strong market rallies
DESCRIPTION
C
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After trade initiation and if market is range bound or
trending away from spread, no action is necessary other
than monitoring points of support and resistance
areas in case position becomes threatened
In the case of an Iron Condor, adjust both spreads
taking profit in the spread not threatened and entering
a debit spread for the spread that is threatened moving both to either the
next month’s expiration or a weekly spread that is
suitable
If one of the short legs of the trade comes within 1.5% to 2.5 % of the market price,
prepare to roll your position(s) to achieve balance (equal
distance of each short leg to market) - adjust before trade reaches 1.5% of the market
price higher percentages should be considered when
the VIX is higher than 30
If the trade only includes a bull spread, adjust the
spread to the next monthly expiration and add a call
credit spread
The goal is to achieve a credit or break even but
there are times where it may be necessary to
provide additional distance from the market and it
would be acceptable for the adjustment result in a debit
TRADE MANAGEMENT
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• An acceptable profit is fifty to eighty percent of credit received or greater if market conditions are favorable
• For positions that have been rolled or adjusted, profit target should be twenty to fifty percent of credit
• It is also acceptable to allow the trade to expire worthless as long as there is a least a 10% distance to the market price
EXIT: TAKE PROFIT• It is not necessary to use stop losses to
exit this trade
EXIT: STOP LOSS• Refer to the Trade Management section
above
• Spread Adjust Up/Down within Same Expiration (Ideal)
• Spread Adjust by Moving to Later Expiration
• Spread Adjust Up/Down and by Moving to Later Expiration
EXIT: ADJUSTMENT OR ROLL
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