Investors and traders seeking consistent growth in the commodities market often explore strategies that leverage compounding returns. One such method involves compounding growth in light crude futures trading by using vertical put spreads while incrementally increasing the spread width. This approach allows for the reinvestment of profits, leading to potential exponential growth over time. In this blog, we analyze how a systematic increase in spread width by $0.50 per trade can compound gains effectively.
How Vertical Put Spreads Enable Steady Growth
The foundation of this strategy is based on vertical put spreads, a popular options trading technique where traders buy and sell options at different strike prices within the same expiration period. The difference between the strike prices represents the spread width, which directly impacts the risk and reward profile of the trade.
Incrementally Increasing Spread Width: A Systematic Approach
From the analysis of recent light crude futures trading data, I observed the following:
- The first trade had a spread width of 2.5 and generated a profit of $300.
- The second trade had a spread width of 3.0 and resulted in a profit of $350.
- Each subsequent trade increased the spread width by 0.5, leading to a proportional increase in profit.
By following a disciplined approach of reinvesting profits and incrementally increasing the spread width, traders can experience compounded growth. Our 10-trade projection highlights the following key takeaways:
Analyzing the Profit Potential: A 10-Trade Projection
Our 10-trade projection highlights the following key takeaways:
- A systematic increase in spread width leads to progressively larger profits.
- The cumulative profit grows exponentially, reaching $1,400 by the 5th trade and surpassing $4,000 within 10 trades.
- This method allows traders to scale their positions without taking excessive risks, as the profit from previous trades funds the new ones.
Managing Risk While Scaling Your Positions
To implement this strategy effectively, traders should:
- Begin with a conservative width to establish a solid foundation and assess market conditions.
- By adding 0.5 to the spread width with each trade, traders can incrementally boost profits while managing risk.
- Using previous trade profits to finance new trades minimizes out-of-pocket expenses and fosters steady portfolio growth.
- Staying informed about crude oil price movements and market volatility ensures that adjustments can be made when necessary.
Harnessing the Power of Compounding in Futures Trading
Compounding growth in light crude futures trading through a structured spread-widening strategy presents an exciting opportunity for traders. By carefully increasing the spread width and reinvesting profits, traders can harness the power of exponential growth while maintaining risk management discipline.
As with any trading strategy, thorough research and continuous monitoring are essential for long-term success. After 10 trades, there is an estimated ROI of over 740%, making this a compelling approach to achieving sustainable profitability in the commodities market.
Need additional guidance or to bounce ideas off of like-minded traders? Check out Dorian Trader’s Trading Club or or options trading courses.
Compounding Growth Projection
Note: Projection is based upon max profit and does not account for commissions and fees. Short position is placed on the PUT side at the 15 delta and a minimum DTE at 140 days.
| Trade Number | No of Contracts | Spread Width | Profit per Trade | Cumulative Profit | Buying Power | Max Loss | ROI Per Trade |
1 | 1 | 2.5 | $300.00 | $300.00 | $654.90 | $2,200.00 | 45.81% |
2 | 1 | 3.0 | $350.00 | $650.00 | $773.24 | $2,650.00 | 45.26% |
3 | 1 | 3.5 | $400.00 | $1,050.00 | $887.05 | $3,100.00 | 45.09% |
4 | 1 | 4.0 | $440.00 | $1,490.00 | $994.54 | $3,560.00 | 44.24% |
5 | 1 | 4.5 | $470.00 | $1,960.00 | $1,092.12 | $4,030.00 | 43.04% |
6 | 1 | 5.0 | $510.00 | $2,470.00 | $1,193.31 | $4,490.00 | 42.74% |
7 | 1 | 5.5 | $550.00 | $3,020.00 | $1,293.23 | $4,950.00 | 42.53% |
8 | 1 | 6.0 | $580.00 | $3,600.00 | $1,376.88 | $5,420.00 | 42.12% |
9 | 1 | 6.5 | $620.00 | $4,220.00 | $1,471.51 | $5,880.00 | 42.13% |
10 | 1 | 7.0 | $650.00 | $4,870.00 | $1,553.31 | $6,350.00 | 41.85% |
