how to do riskless spread trades

How to Do RISKLESS Spread Trades

Spread Trades can capture a lot of premium…

The BAD news: they can also cost your shirt.

Example:

the “BEAR CALL

SPREAD”

The Bear Call Spread is called a “credit” spread…

…because you get paid to do it.

SELL TO OPEN $77.50: $2.10 BUY TO OPEN $80.00: -$1.10 TOTAL CREDIT: +$1.00

…you keep the $1.00 (per share)

capturedfrom the spread.

Safe zone: you keep the $100 credit

Maximum loss: $150

If your stock goes UP, you get

CLOBBERED!

BUT..!

a spread can

also bite you back!

DANGER, WILL ROBINSON!

The MARTINGALE Strikes AGAIN!

But what

if YOU had a secret

weapon?

An Ace in Your Sleeve?

..but NEVER worry about it BACKFIRING?

What if there was a way to grab the premium of the spread…

Introducing a REVOLUTIONARYidea…“NESTED” Spread Trades!

…a spread trade nested within another trade…

A strategy that generates premiumin the spread trade…

…but NOT risk.

Wanna see how?

Let’s look at the “Context” Tradeof our nested spread,

A Married Put

Your stock is protected by a “put” option…

GILD stock 100 shares $75.70November $77.50 put +$ 3.80TOTAL INVESTMENT $79.50Protected by Put: -$77.50Total Amount AT RISK $ 2.00(per share; risk of 100 shares is $200)

Now there’s no limit to how high your“MARRIED PUT”

investment may go,

…but there is a hard stop, in case the

play starts losing.

GILD stock 100 shares $75.70November $77.50 put +$ 3.80TOTAL INVESTMENT $79.50

That’s $7,950 invested with unlimited upside potential, but a limited amount of risk

In this case the total amount AT RISK is $200, or 2.5%.

Now let’s look at that Bear Call Spread

again:

SELL TO OPEN $77.50: $2.10 BUY TO OPEN $80.00: -$1.10 TOTAL CREDIT: +$1.00

It gives you $100 at the beginning, yes… but has $250 risk!

That means youcan lose the $100,PLUS an additional$150/contract…

PAY ATTENTION NOW…

You might THINK that the $200

(married put risk) +

$150 (bear call risk) =

$350 total capital risk...

But in fact, The total

capital risk is only

…$100!

Check the next slide for

the COMBINED position…

Combined Risk/Reward depiction courtesy of PowerOptions(…FREE two week trial! )

The $100 income received for doing a Bear Call Spread… takes the risk of the Married Put down… from original $200 to just $100. Just look at the red water getting shallower…

Meanwhile, the Bear Call Spread has no capital risk of its own. Risk in the spread would come if we did not own the stock…but we do.

$77.5/$80 bear call spread has no inherent capital risk

$200 + $150 = $100 total risk? HUH?(Yup.You actually end up with less

total risk by doing both plays!)

TA-DAAAAA! A RISKLESS Bear Call Spread!

That’s not all.Let’s look closer:

IF your stock goes up,

…well, we kinda LIKE that when it’s our stock. There’s unlimited upside potential!

The net position has $100 risk, but unlimited potential. But

that’s not all. It MAY possible to eliminate ALL risk.

Did You say ELIMINATE RISK?

Let’s see how THAT’S done…

The Put option protecting this stock expires in November…

But the Bear Call Spread finishes in September.

If your stock stays sideways or goes down…

You get to keep that $100 at September expiry..!

So what happens if we do keep the $100 premium?

Why, we get to do it again of course!

If you collect another $100… …you’ll cancel all the risk.

• Aug 31: Married Put begins with $200 risk– Also Aug 31“Nested Spread” captures $100... $100 risk left

• Sep 30: Bear Call Spread Expires– “bank” the first Bear Call Spread, do another Bear Call Spread– Capture a second $100!– $200 total captured offsets the $200 AT RISK…– NO risk left!

Whether the stock goes up, down, OR sideways… we WIN!

No RED Water!!

This is called “Bulletproofing”

NAY-SAYER ALERT!!This SlideShare was uploaded on Sept 16, 2016 two weeks in advance of the Sept 30, 2016 expiry of the Bear Call Spread.

Whether the goes down, up, or sideways, the Bear Call Spread itself poses no capital risk.

Watch for the followup SlideShare to see how this real example is managed!

FURTHER NAY-SAYER ALERT!!The original blog post was entered on August 31 and there are over eighty comments at the time of this writing.

The riskless Bear Call Spread featured in the blog post is commonplace. We have six others.

Watch for the followup SlideShare to see how this real example is managed!

Imagine never worrying about a Bear Call Spread…

HA! Your “Bear Style”is no match for my kung fu!

…ever coming back to “bite you”!!

You’ve learned to eliminate risk in the Bear Call Spread.

The best part? It’s not just the Bear Call Spread.

There are SEVEN riskless spreads.

There’s more than ONE way to peel an apple.

Get this two hour video on SEVEN different risklessspread trades “Stop Losing at Spread Trades Forever”!

This quick slideshow is just the start of “RadioActive”

riskless spread trading…

To learn more about Riskless Spread Trading (and Bulletproofing!)…

…check out these articles on the RadioActive Trading Blog!

You can Click these Links!• Can You REALLY Do a RISKLESS Spread Trade?• WHAT on Earth is a Nested Spread Trade?• The Strange Secret of Riskless Spread Trading• The RISKLESS Spread Trade that Pays You TWICE

OR! Get this two hour video on SEVEN different risklessspread trades “Stop Losing at Spread Trades Forever”!