This week’s video explores a bull put spread system and how to deal with trend reversals.

Enjoy!

NOTES

Student Question, “For the past 2 months I have been selling $5-wide credit spreads on QQQ and SPY less than .50 (.45-.47) but multiple contracts. It worked because of the bullish trend. If SPY bounces off 50 SMA  on the daily today should I continue to be aggressive or should I decrease the number of contracts?

This is a core position that I plan to do every month. I will roll out if it moves ITM. I am comfortable in a consistently bullish or bearish trend. I struggle when there is a change in sentiment/market trend.”

Answers

1. I’m a stickler on getting the 50 cents on a $5-wide spread.
2. Everyone struggles when the trend changes.
3. It is IMPOSSIBLE to consistently nail a trend reversal real time. The market is messy.
4. Monthly bull put – ONLY if market is in an uptrend. Use 50-day MA as your line in the sand.
   1. Core: I always want bullish exposure b/c I assume SPY/QQQ/IWM rises over time.
      1. You will always enter a monthly cash flow play REGARDLESS of the chart.
   1. Tactical: I will do it If I get a bull signal or the uptrend is intact. You decide what’s the line in the sand.

Rules

1. Enter 30 days or 45 days to expiration
2. If SPY > 50-day moving average, I enter 2 bull puts
3. If SPY < 50-day moving average, I enter 1 bull put.
4. Management if wrong.
   1. Bail if hits short strike    
      1. Pro: limits the loss
      1. Con: whipsaw
   1. Maintain position and roll out in time if we’re ITM near expiration.

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