This is a topic that I am super excited to talk about because this credit spreads trading strategy was discovered through an unplanned backtesting experiment. I started off by asking the question, “how often does a credit spread trade go under my breakeven price?” After I figured that out, then I asked the question that changed everything… “what is my win rate if I enter a trade at the money after it broke through the breakeven price?”

If you have no idea what I am talking about, let me simplify this and explain. When credit spreads trading, a position can go against you. However, it means nothing until the trade goes below (if trading a put credit spread) your breakeven price because that means at expiration, you will realize your max loss.

Well, how often does a stock that drops below your breakeven recover and hit the max profit? As always, let’s dig into the statistics!

These statistics are calculated and determined based on the strategies traded in the Inner Circle Membership assuming you enter the trade when it breaks below the breakeven price…

The Squirrel Strategy

• Historical Success Rate Of Recovery After Going Below Breakeven: 53.7%
• Max Profit: $50
• Max Loss: $50
• The Shadow Trade Rules: Enter a put credit spread at the money and collect a minimum of $.50 per spread to consistently profit when a previous squirrel strategy setup crosses below the breakeven price.

The True Turtle Strategy

• Historical Success Rate Of Recovery After Going Below Breakeven: 66.7%
• Max Profit: $45
• Max Loss: $55
• The Shadow Trade Rules: Enter a put credit spread at the money and collect a minimum of $.45 per spread to consistently profit when a previous true turtle strategy setup crosses below the breakeven price.

The Winning Whale Strategy

• Historical Success Rate Of Recovery After Going Below Breakeven: 82.6%
• Max Profit: $50
• Max Loss: $50
• The Shadow Trade Rules: Enter a put credit spread at the money and collect a minimum of $.50 per spread to consistently profit when a previous winning whale strategy setup crosses below the breakeven price.

The Elastic Bounce Strategy

• Historical Success Rate Of Recovery After Going Below Breakeven: 76.5%
• Max Profit: $50
• Max Loss: $50
• The Shadow Trade Rules: Enter a put credit spread at the money and collect a minimum of $.50 per spread to consistently profit when a previous elastic bounce strategy setup crosses below the breakeven price.

The Elastic Rejection Strategy

• Historical Success Rate Of Recovery After Going Above Breakeven: 97.9%
• Max Profit: $50
• Max Loss: $50
• The Shadow Trade Rules: Enter a call credit spread at the money and collect a minimum of $.50 per spread to consistently profit when a previous elastic rejection strategy setup crosses above the breakeven price.

To summarize the data, if you weren’t able to enter a trade on time or the trade you are in goes against you, you can double down or enter the trade for the first time and have a high win rate with a relatively high max profit.

The win rate varies by each strategy, but on average, the shadow strategies should be considered a viable trading strategy and option. If you want to learn about the original strategies, you can do that in my prior articles here. However, I wanted to create this article for Inner Circle Members to realize that if a trade goes against you, there is over a 50% chance of it recovering by expiration and if you missed out on the trade, it may even be a better time to enter.

Thanks for reading 🙂
Austin Bouley
CEO & Chief Strategy Officer