As a put credit spreads trader (mainly), I have found myself looking forward to and loving red days. While many traders might dread market downturns or flash crashes in the market, I have come to appreciate the opportunities they provide for my trading strategy.

Put credit spreads involve selling a put option with a strike price below the current market price and buying a put option with a lower strike price as a hedge. The goal is to earn a credit from the sale of the put option, which offsets the cost of the purchased put option. If the market remains above the strike price of the sold put option, the trade will be profitable.

3 Reasons Why I Love Red Days:

Increased option premiums:

When the market experiences a sharp decline or even a simple red day, option premiums tend to increase. This is because traders are willing to pay more for the right to sell their stock at a higher price in the future. As a put credit spread trader, this is great news. The increased premiums mean I can collect more credit from selling the put option, which increases my potential profit and lowers my max loss.

Opportunity to sell deeper out-of-the-money:

On red days, put volatility typically increases which can create an opportunity to sell put options with strike prices that are further out-of-the-money. This means I can collect more credit for the trade which increases my potential profit while also providing a larger buffer against potential losses.

Reduced market volatility:

While a mark downturn or red day may seem chaotic and unpredictable, it often results in reduced future market volatility. This can be beneficial for put credit spread traders because it reduces the likelihood of the stock continuing to drop significantly below the strike price of the sold put option. This is because in an up trending market, when a stock dips, it typically recovers. With less volatility, the price of the stock is less likely to move quickly and dramatically, which can help protect my trade from losses.

In conclusion, red days, or days when the market experiences a significant decline, create an ideal environment for put credit spread traders. I highly encourage you to go through my put credit spreads strategies, so you can take advantage of red days with me! If you want access to my personal trade alerts, you can join or learn more about the Inner Circle Program here!

Thanks for reading 🙂
Austin Bouley
CEO & Chief Strategy Officer