Best High Probability Trading Strategies
There are a number of high probability trading strategies available for the active trader. If you want to have consistent high probability trading opportunities then one of the best ways is to use options in your trading.
It is well known that about 85% of stock options, calls and puts, expire each month out of the money so are worthless, and in fact it is even worse than because options that are still in the money at expiration could still be worth less than what the buyer paid for them, so they lost money as well.
So why do traders buy calls and puts if so many of them expire worthless?, the answer is simple, they are looking for the high return trade, maybe 20-100% in a matter of a few days to a few weeks. That sounds great but buying straight puts and calls is a low probability trade, if you want a high probability trade the smart move is to take the other side of these trades by selling the calls and puts.
There are 3 main high probability options trading strategies that can be used to sell options to traders and collect the premium when they expire worthless
Covered Calls
Not my favourite option selling strategy but fairly easy to understand and manage. Basically you buy stock in 100 stock increments then sell out of the money calls using your stock as collateral, you can make about 5% return every 4-6 weeks using this strategy if all goes well
Credit Spreads
A credit spread is an options trade that does not involve the use of any stock so it is a pure options trade. The basic trade is to sell 1 call then buy 1 call that is further out of the money as collateral or protect. Both calls could expire worthless but you make money because you collect more premium on the call that you sold than the call that you bought. You can make anthing from 2-3% to 50% every 4-6 weeks depending on your risk tolerance, but it’s no as simple as that as things can go wrong and you can incurr losses. But the beauty of this trade is that you can decide from the start what level of high probability trading you want with the trade, if you only go for a 3% return then the probability of success will be very high at around 95%. You can use calls or puts when creating a credit spread trade.
For many traders the holy grail of low risk, low stress trading with consistent profits is the Iron Condor Trade
Iron Condor High Probability Trade
The easiest way to describe this trade setup is that it is really made up of two credit spreads, a call credit spread and a put credit spread and so it requires 4 options to be used, 2 are bought and 2 are sold.
Typically you can make about 5-10% every 4-6 weeks using this trade, but there is a downside, if you don’t use good risk and trade management you can lose a large part of your account if the market tanks, so this is not a set and forget trade like many try and make it out to be.
The truth is that there is a lot to learn about the Iron Condor trade before you should start to trade it, once learnt it is fairly easy. Learning how to trade the Iron Condor is outside the scope of this blog even though the author is very familiar with it
To learn more just use Google to do a few searchs such as:
Iron Condor
How to Trade the Iron Condor
Iron Condor Trade Setup
Iron Condor Trade Adjustments
