Tuesday, July 6, 2021

Bull Put Credit Spread ETF Trading Plan

INVESTMENT OBJECTIVE

The primary objective is to generate monthly income with a high probability of success. This strategy is an alternative to trading Cash Secured Puts (CPSs) for smaller accounts.

INVESTMENT STRATEGY

Sell out-of-the-money (OTM) Bull Put Credit Spread (BPCS) on Exchange Traded Funds (ETF's) with an 80%+ probability of expiring OTM.

EXCHANGE TRADED fUNDS

The main ETF's traded will be DIA, IWM, QQQ, SPY, and the XLx SPDR Sector ETF's.

POSITION SIZING

Positions will be established at 1 contract (i.e. 100 shares) per underlying.

TRADE SETUP

Before entering a trade, use Ichimoku Cloud to determine the trend and the support levels. Preferably the trend should be neutral to up. Key indicators of an uptrend:

  • The cloud is Green (Senkou Span A > Senkou Span B).
  • The stock price is above the cloud .
  • The Base Line (Kijun-sen) is above the cloud.
  • The Lagging Span (Chikou Span) is above the cloud.

Support is at the top and bottom of the cloud. So look for strikes in that range.

ENTRY STRATEGY

Place an order the sell a BPCS by selling an OTM Put with a delta of 20 or less (80%+ Probability OTM), and buying an OTM Put in the same expiration for $0.05.

EXIT STRATEGY

Place a GTC order to close the BPCS at $0.05 to take profit.

Place a GTC order to close the spread at market if the stock price falls below the breakeven price (i.e. stop loss).

TRADE ORDERS

All 3 orders can be placed at once using Thinkorswim (TOS) 1st Triggers OCO. The first order will be to enter the BPCS. If filled, it will trigger the GTC OCO orders to close the BPCS either at a profit or loss. OCO stands for One-Cancels-Other, meaning one order will be filled and the other canceled.