Trading credit spreads can be a lucrative strategy in the world of options trading. However, even with careful analysis and planning, losses can occur. The key to long-term success lies in implementing effective strategies to turn around losing trades. In this article, we will explore three powerful techniques: rolling the trade, closing the trade early, and leveraging time decay (theta) by waiting until expiration.

3 Strategies To Turn Losers Into Winners

Rolling the Trade: One strategy to consider when faced with a losing credit spread is rolling the trade. Rolling involves closing the existing position and simultaneously opening a new one with adjusted strike prices or expiration dates. There are two primary ways to roll a trade: rolling up and rolling out.

• Rolling Up: If the price of the underlying asset is moving against your bearish credit spread, you can roll up by buying back the short leg and selling a new spread with higher strike prices. This adjustment allows you to widen the breakeven range and potentially turn a losing trade into a winner if the stock reverses course.
• Rolling Out: Rolling out involves extending the expiration date of your credit spread. If the underlying asset is moving unfavorably but there is still time for a potential reversal, you can close the current position and open a new spread with a later expiration date. By giving yourself more time, you increase the opportunity for the stock to move in your favor.

Closing the Trade Early: Closing a losing trade early is a strategy that aims to limit further losses and preserve capital. If the price of the underlying asset is moving rapidly against your credit spread, it may be prudent to close the position before the losses escalate. While this strategy does result in a loss, it prevents the trade from turning into a catastrophic one. By cutting your losses early, you free up capital to be deployed in potentially more favorable opportunities.

Waiting Until Expiration to Let Theta Work: Credit spreads benefit from time decay, also known as theta. Theta refers to the daily reduction in the option’s value as it approaches expiration. By allowing time decay to work in your favor, you can potentially turn a losing trade into a winner if the underlying asset remains within the breakeven range. However, this strategy requires careful monitoring, as the stock could move further against your position, resulting in a larger loss. Patience and a thorough understanding of the risks involved are essential when employing this strategy.

Risk Management For These Strategies

While these strategies have the potential to turn losing trades into winning trades, it’s crucial to emphasize the importance of risk management. Set clear risk parameters before entering a trade, including predetermined stop-loss levels and position-sizing guidelines. These measures will help you limit losses and protect your capital from severe drawdowns.

The Credit Spreads Trade Saver

The Credit Spreads Trade Saver was created for Inner Circle Members who were scared of experiencing losses. This Trade Saver can help you turn your losers into winners (or at least smaller losers). You provide the details on the trade you want to save or analyze, and the Trade Saver will give you different options to save your position. It will also give you step by step instructions to follow!

Thanks for reading 🙂
Austin Bouley
CEO & Chief Strategy Officer