Learn how small trading accounts can thrive by using the bull call spread strategy, proven to generate over 600% returns in five years. Discover the in-out debit spread approach, ideal for beginners, with important entry and exit conditions based on moving averages. The podcast explains how to manage trades effectively, aiming for a 25% gain while handling risks. Backtesting reveals valuable insights into market trends and optimal timing, making it easier to navigate options trading successfully.
Utilizing an in-out debit spread strategy, particularly the bull call spread, can yield over 600% returns for small trading accounts.
Implementing a well-defined exit strategy with profit targets and time limits is essential to maintaining profitability and managing risks.
Deep dives
Trading Options with a Small Account
Trading options with a small account focuses on minimizing risks while maximizing the probability of success. It's common for beginners to opt for inexpensive out of the money options; however, this approach often results in low probability of winning trades. Instead, a more effective strategy involves utilizing an at-the-money debit spread, which balances low costs and higher probabilities of profit. By buying an in-the-money option and selling an out-of-the-money option, traders can reduce overall costs while enhancing their chances of earning returns.
Bull Call Spread Strategy
Implementing a bull call spread strategy can yield impressive returns, especially in favorable market conditions. This strategy involves buying a call option two or three strikes in the money and selling a call option two or three strikes out of the money, with an expiration date approximately 30 days out. Such a trade often costs under $200 and has been shown to achieve over 600% returns on investment, along with a 75% win rate over five years. This emphasizes the effectiveness of systematic trading methods combined with timely market analysis.
Exit Strategy to Mitigate Risks
A well-defined exit strategy is crucial for maintaining profitability and reducing potential losses. The suggested approach is to close the trade after reaching a 25% profit target or after three weeks, whichever comes first. This not only helps in managing assignment risk associated with short positions but also minimizes the likelihood of incurring maximum losses during unfavorable market movements. By establishing consistent criteria for both entries and exits, traders can enhance their overall performance while managing the unique challenges of trading with a small account.
1.
Effective Options Strategies for Small Trading Accounts
Have a small trading account but thinking about trading options?
You're in luck as this episode shows how trading TLT bull call spreads the past 5 years made over 600% and is perfect for small trading accounts.
The bull call spread strategy discussed here is also known as an in out debit spread. An in out debit spread is a vertical spread where the option you buy is in the money and the option you sell is out of the money. In out debit spreads are great for beginners with small trading accounts who want to get directional but not have to pay as much to get in a trade.
This episode includes a 5 year backtest of TLT buying in out debit spreads with about 30 days to expiration only if the 21 day exponential moving average is above the 50 day simple moving average. The exit parameters have a target of a 25% gain or a time stop loss of closing the trade about 3 weeks later, whichever comes first.
The backtest software shown in this video for in out debit spreads is CML Trade Machine Pro.
Here's the link:
www.OptionsTrading.Help/CML
Thanks for listening.
J. Eric O'Rourke
www.OptionsTrading.Help/Services
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