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A Go-To Options Strategy for Limiting Risk in Uncertain Times

by | Oct 4, 2024

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Navigating volatile markets is about more than picking the right stocks…

It’s about managing risk, protecting profits and maintaining flexibility. One of my go-to methods in these conditions is using options spreads, especially credit spreads like the bull put spread.

By setting up trades that take advantage of price movements while limiting downside risk, spreads allow you to stay in the game without taking on excessive exposure.

Let’s break down an example where I used a bull put spread on Ralph Lauren (RL).

Why a Bull Put Spread?

At the time, I was eyeing RL as a potential play based on its technical setup if it pulls back to support. The stock had recently hit all-time highs, and I’m not looking to buy at those elevated levels. 

Instead, I’d prefer to catch a dip to a solid support level around $165. Here’s where the bull put spread comes in — it allows me to profit from the stock staying above that key support without requiring me to buy shares outright.

I set up a $160 by $165 bull put spread for both November 2024 and January 2025 expirations. This spread involved selling a $165 put and buying a $160 put, collecting a premium up front. As long as RL stayed above $165 by expiration, I kept the full credit — which in this case was $2.25 per contract. 

My max risk was about $275 if RL dropped below $160, but this setup gave me a solid balance of risk-reward.

The Benefit of Staggering Expirations

By staggering the expiration dates — Nov. 15 and Jan. 17 — I gave myself flexibility. If RL dropped to that support level, I had a chance to profit from both time frames. But even if only one filled, I still stood to make a nice return.

This is the beauty of options spreads — they give you flexibility and control in volatile markets. 

Whether it’s waiting for the right pullback or setting a line in the sand with a spread, you can still generate income while limiting risk. It’s not always about hitting a home run…

Sometimes, it’s about collecting steady profits while staying nimble.

If you’re not using options spreads in your trading, you’re leaving a powerful tool on the table.

I’ll see you in the markets. 

Chris Pulver
Chris Pulver Trading

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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk. 

 

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Disclaimer: We develop tools and strategies to the best of our ability, but no one can guarantee the future. There is always a risk of loss when trading. Past performance is not indicative of future results. While we have been using the Alpha Arrows with great success, we cannot guarantee any future results. What you will see today are some of the best examples over the last few months. There were bigger winners, there were smaller winners, and there were losers. Since the Alpha Arrows is a tool for traders and not a trading service, profits and performance will vary among users. 

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