I’m thrilled to introduce you to a remarkably simple yet highly effective trading strategy for call credit spreads – the “Bear Play Strategy” This strategy comes with the potential to deliver a 72% win rate and an impressive annualized return of 30%. In essence, it offers the opportunity to triple the average market return by following this straightforward and proven approach.

In this article, we’ll break down this strategy step by step. I’ll guide you through the criteria for identifying the right setup, show you examples on a stock chart, and discuss the rationale behind each aspect of the Call Credit Spread.

Understanding the Criteria for the Bear Play Strategy

The Call Credit Spread strategy relies on specific criteria to pinpoint the ideal trade setup. These criteria work in harmony to ensure that the trade is well-aligned with market conditions. Let’s delve into the key elements that define the Call Credit Spread:

1. SMA 10 Period Moving Average: The first criterion involves the 10-period simple moving average (SMA). To meet this requirement, the current SMA value should be less than the previous day’s SMA value. This condition suggests that the short-term trend is heading downward, making it an ideal environment for this strategy.
2. Stock Price Below the 10-period Moving Average: In addition to the SMA, the stock price should be situated below the 10-period moving average. This alignment confirms that the stock’s price is in line with the short-term downtrend.
3. Stock Price Within -3 Standard Deviations: Another crucial condition is ensuring that the stock price remains within three standard deviations of the 10-period moving average. This boundary helps identify stocks that are not significantly overextended, preserving the strategy’s effectiveness.
4. Limited Daily Price Movement: The Call Credit Spread strategy thrives on stability. It’s important to enter the trade when the stock price moves within a specific range. The daily price movement should not exceed 1% in either direction, ensuring that the trend remains conducive to the strategy.

How I Structure The Call Credit Spreads Trade

Selecting the right expiration date is pivotal to the success of the Call Credit Spread strategy. Follow these guidelines to make the best choice:

1. Calculate the Expiration Date: The expiration date for this strategy is determined by adding nine days to the current date. However, it’s crucial to make sure that this date falls on a Monday, Wednesday, or Friday. This aligns with the typical weekly options expiration cycle.
2. Delta of 25: The delta of an option represents the probability of that option expiring in the money. For this strategy, we aim to select options with a delta of 25. This equates to roughly a 1% distance from the stock price.
3. $1 Wide Spread: Construct a call credit spread by trading a $1-wide spread. This approach involves selling an out-of-the-money call option and simultaneously purchasing a higher strike call option. This width helps manage risk while maintaining an attractive risk-to-reward ratio.

Navigating The Market With Call Credit Spreads

The Call Credit Spread strategy is highly effective when the market is exhibiting signs of recovery. Market conditions where prices have risen rapidly and are starting to retrace represent an optimal environment for this strategy. In such conditions, you can capitalize on the short-term downtrend with the Call Credit Spread approach.

In the realm of options trading, the Call Credit Spread strategy stands out as a powerful tool for traders seeking consistent and high-probability returns. By adhering to the specified entry criteria, properly structuring the trade, and leveraging market conditions, you can navigate the markets with confidence.

With a historical win rate of 72% and an annualized return of 30%, this strategy has demonstrated its effectiveness. It’s currently in use in the market and has shown the potential to triple the average market return.

Be sure to check out our free training workshop to gain further insights into the Call Credit Spread strategy and other options trading techniques.

Thanks for reading 🙂
Austin Bouley