Options trading offers an array of strategies, but one of my go-to methods for generating consistent income is using credit spreads.
Credit spreads provide an excellent balance of risk management and profit potential — and the best part is, you don’t need to be right about the market’s direction every single time to make money.
A lot of people are afraid of credit spreads because they think they’re complicated, but that’s simply not the case. So let’s simplify things a bit…
A credit spread involves selling one option and buying another option at a different strike price — both with the same expiration date. This creates a defined-risk trade where you collect a premium up front, and your goal is for the options to expire worthless so you can keep that premium.
For me, the beauty of credit spreads lies in their flexibility.
You can implement them in bullish or bearish markets by using bull put spreads or bear call spreads, respectively. The idea is to take advantage of key support or resistance levels, selling spreads just outside of those levels where price action is likely to stay.
Let’s break down the process…
Say I’m looking at the S&P 500 (SPY), and I believe it’s going to stay above a certain support level. I’ll sell a put option at a strike price below that level, and buy another put at an even lower strike to cap my risk.
As long as SPY stays above that level, I collect the premium — and even if it drops slightly below, my loss is limited because of the protective long put.
The key here is probabilities. I’m not looking for massive moves in the market…
I’m looking for those high-probability setups where the market will likely chop around or stay range-bound. Mondays are particularly effective for this strategy, as they often see the market revert to key levels after the weekend — and 75% of the time, the market respects its daily trading range on Mondays.
Timing is also crucial…
I’ll often look at options expiring within the week — sometimes with only a few days left to expiration. This shorter time frame allows me to capture premium quickly, without having to hold the position for too long, exposing myself to unnecessary risk.
Thursdays and Fridays are prime days for these trades, especially if I’m confident the market will stay within a certain range before the weekend.
Now, let’s be clear…
No strategy is without risk. There are no guarantees in trading.
But the reason I love credit spreads is that the risk is defined up front, and I know my potential loss before I even enter the trade. If things don’t go as planned, I can manage the trade by adjusting my position or taking a small loss.
Credit spreads offer a disciplined, systematic way to approach the market — especially if you’re looking for consistent income. By selling premium in high-probability zones and sticking to key levels, you can create a reliable edge in the market.
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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