Spread Trades: Low Risk AND 90% Returns
At this point in my life, I can’t risk large losses.After the 2020 pandemic blew up my put-selling strategy, I realized I needed a better way to generate income. Finally, after months of research, I have a consistent income strategy that lets me decide how much I’m willing to risk. I just put this new strategy to the test. And the results prove you don’t have to settle for small returns in exchange for low risk…I have three young kids. These kids need to go to college one day, so they can move out. That means I have three rounds of college tuition (and a very late midlife crisis) ahead of me. If I want to fund those, I can’t rely on risky strategies that masquerade as “safe.” I’ve done that before — and I paid for it, with my hard-earned money.
90% in 1 MONTH?
Instead of selling puts, I use spread trades for income.I shared an example of a spread trade on Dollar Tree, Inc. (DLTR). A spread involves trading at least two contracts at the same time. When I sell a put for income, I also buy a different put to limit risk. These trades fix the problem with a traditional put-selling strategy. I still generate income, but my risk is limited. With each spread trade, I can calculate how much risk is on the table — right down to the dollar. Spread trades also require less capital than traditional put selling. At the most, you’ll need $500 to place a trade. Usually, that number is closer to $250. Sometimes it’s even as low as $100. Because they require low amounts of capital, spread trades generate smaller amounts of income. Typically, you’ll earn less than $50 per contract. But you can overcome this by placing trades more often. In fact, if you play your cards right, you could make a 90% return on your money in just one month… See, I ran a beta test of this strategy last month. At True Options Masters, we use real money to test our strategies. For my test, I sent alerts to my colleagues, who placed trades with their own money. We used their fill prices to track returns. For the test, no trade required more than $500 in capital. But let’s add a margin of safety, and start with $1,000. Over the course of the month, our trades generated $321 in income. On a $1,000 account, that’s a 32.1% return. Now, considering buy-and-holders are happy with 10% a year, that’s impressive enough already. But risk never exceeded $256 on any trade. With $1,000, more aggressive traders could trade three positions for each signal… Boosting the return on that $1,000 to over 90% in one month. I’m glad my strategy blew up in 2020. It forced me to rethink everything I knew. Well, everything I thought I knew. I realized put selling is passive. All you can do is sell and hope. But safety requires an active strategy. With spreads, I sell the put, then define the risk. It can be as small as I’m comfortable with. And, as I said earlier, my risk tolerance is low these days. I know that’s true for many of us right now. So, if you want a strategy that provides you with consistent income and lets you decide how much risk is on the table, consider giving spreads a try.On Wednesday,
Regards,Amber Hestla Senior Analyst, True Options Masters