TradingTrainer.com's BlackBox Options Trading System
Introduction to Dual Credit Spread
When the market trades sideways, the Dual Credit Spread strategy can
be utilized. This option trading strategy seeks to capitalize on
the value decay of the option over time. The Dual Credit Spread strategy
involves buying and writing 4 separate options at different strike
prices within the same expiration month. More popularly known as
the Iron Condor, this strategy revolves around the writing ( or selling)
of out-of-the money call and put options that have high mathematical
probabilities of reaching expiration without being exercised. Although
the earnings potential for this strategy is relatively limited, the main
object of this strategy is to protect against catastrophic losses when
the market moves from neutral towards the direction that is against your
bias. A typical trading duration for this Iron Condor is between 3
and 5 weeks.
Detailed Explanation of Dual Credit Spread
As it name implies, this strategy utilizes two separate spreads.
The first credit spread consists of writing an out-of-the money Call and
buying an even further out-of-the-money Call for the same expiration
month. The second credit spread consists of writing an
out-of-the-money Put and buying an even further out-of-the-money Put for
the same expiration month. In essence, the Dual Credit
Spread strategy utilizes a combination of a bullish option "strangle" (long a call and put), and a
bearish option strangle that is closer to the market... both in the same expiration month. Risk control in Dual Credit Spreads. If the "Dual credit spread" strategy has been used, with both calls and puts being sold, and the size of both spreads is equal, then the maximum risk is defined by the total potential value of either spread (calls or puts), minus the credit received for both, plus commissions and fees. This is because, at option expiration, only one "side" of the trade, either the call spread or the put spread, has the potential to have value.
If the Iron Condor strategy is used
properly, with both calls and puts being sold, and the size of both spreads
being equal, then the maximum risk is limited to the total potential value of either spread (calls or puts), minus the credit received for both, plus commissions and fees. This is
a predictable and/or defined risk, because at option expiration, only one side of the trade
( either the call spread or the put spread) has the potential to have value.
On the other hand, the maximum profit potential
is also limited because the maximum gain is
equal to the total net credit of the bear Call
spread and the bull Put spread. The
maximum profit potential is achieved if the
underlying stock price remains above the sold
Put strike and below the sold Call strike
To see practical applications of the Iron Condor option trading strategy, visit the cashflowheaven.com
website. The site provides an options advisory newsletter where most of
the recommended trades take advantage of the option's time decay and the
mechanics of the trades revolve around the dual credit spread method.
For an in-depth study on options and option related information, visit the Options Industry Council
to download options trading seminars and ebooks.
For the experienced trader who wants to obtain a general knowledge on options
trading and an in-depth practical guide to option trading strategies; or
for the novice trader who wants to learn how to trade options, visit the Trading Trainer website.
The site maintains a mentoring program, complete with a daily audio and
video newsletter that provides broad market analysis, daily stock and
options picks, daily technical analysis of the stock picks and a weekly
two hour live discussion with the teacher, AJ Brown. Interested
readers are referred to AJ Brown's options trading review page, where
special free offers and signup promo codes may be available for