This is Part 2 of my 3-part series on the top options strategies that I genuinely believe can work long-term. If you missed Part 1 (The Wheel Strategy), check it out on my profile.
Let’s talk about credit spreads; the underrated backbone of consistent options income. When done right, they let you collect premium with defined risk, no assignment headaches, and a clear probability edge. The core idea is simple: you sell one option closer to the money, and buy another further out to cap your losses. The premium you collect is your max profit, and the distance between strikes minus that premium is your max loss. It’s controlled, logical, and repeatable: three things most traders ignore chasing “lotto” trades.
What makes credit spreads powerful is that you don’t need to be perfectly right about direction. You just need the stock to not break a certain level by expiration. You’re essentially selling time decay and volatility, not guessing where price will go next. This makes spreads ideal in choppy or range-bound markets.. the kind that frustrate directional traders. The key is to pick liquid tickers, manage position size, and set your strikes just outside key support or resistance zones. Then, do nothing emotional. Let theta work for you.
Most traders lose money because they take undefined risk or don’t understand position sizing. Credit spreads fix both. You know exactly what you can lose, exactly what you can make, and exactly what needs to happen for you to win. It’s not glamorous, but that’s what makes it sustainable. For many traders, credit spreads are the stepping stone between “random gambling” and actual consistency.
Follow me for Part 3 (the final post in this series) where I’ll break down ny last strategy and how to make money even when the market goes nowhere.
Posted by DamnDrip
3 Comments
You know exactly what you can lose, exactly what you can make :
the second part of this true sttement is usually what traders are not too keen on using this reliable strategy to whcih i usually reply trading has to be boring to be effective not leaving room to luck but rather opting for consistent outcomes.
What do you see as the difference between this and a comparable debit spread at the same strikes? Say I put on a credit spread, $5 credit on a $100 wide. Your broker holds $95 until you close the spread, so those dollars are not available. Compared to buying a $100 spread for $95. You have done the same thing. What I’m i missing?
Thanks but I already knew this. I’ve been a SPX credit spread trader since about 2015. 0DTE, 10∆ on the short side, and so on. European style, no early assignment, cash settled, daily expirations (now, not then), favorable tax treatment, high Vol and OI across most strikes, global trading hours. But, that said, any options position can present the trader with some risks including, contrary to your “no assignment headaches” statement, assignment risk your should there be, for example, a “black swan” event (e.g. 2∆+) move against your spread and the short side of your spread moves ITM.
As to your statement “Most traders lose money because they take undefined risk or don’t understand position sizing” I’d like to see some empirical evidence to support that claim.
In any case, I’ll read Part III of your tome when it’s published. Thank you for taking the time to write it.
Best