Whether you are a new trader preparing for your first trade, a long-term trader trying to rebuild confidence after a losing streak, or someone worried that the market is due for a correction, you are probably asking the same question: What is the best option strategy to use right now?
After looking at risk, capital requirements, and probability of success, I believe I have found a balanced answer.
The best balanced trade for risk and capital is a vertical credit spread, either a Bull Put Spread or a Bear Call Spread.
A vertical spread requires very little capital and your risk is defined. Time decay works in your favor. High probability setups are possible. It is a simple trade, only 2 legs, and risk management is easier than most other trades.
It is best to do in highly liquid stocks or ETF’s (SPY, QQQ, IWM).
SPY Bull Put Spread
SPY is at 745: Go out 30 days, Sell the 731P (35 delta) and buy the 716P (30 delta)
Based on today’s market, you can collect $112 in premium. That is your maximum profit. Your max loss is the width of the spread (5 points) which is $500, less your premium collected of $112, so your max loss is $388. The amount of capital you need, or your buying power effect, is $388. If you divide the BPE into the max win, you get a return of 28%. Not a bad return of a 30 day trade.
SPY Bear Call Spread
SPY is at 745. Sell the 761C (30 delta) and buy the 766C (24 delta).
You can collect $165 in premium (max profit) and your spread is 5 points ($500) subtract your credit and your max loss is $335. The BPE is $335, divided into $165 for a possible return of 49% over 30 days.
Both the Bull Put Spread and the Bear Call Spread have high probabilities of success, and if you get out at 50% profit, your odds of a winning trade increase even more.
I asked ChapGPT the question I started with at the top. It’s answer was the same, vertical credit spreads, either Bull Put Spreads or Bear Call Spreads. ChatGPT also mentioned 4 other type trades to meet the requirement of “least capital, least risk, highest long term survivability” and those trades are:
If you are interested in learning more about how to perform these trades, I recommend joining Dorian Trader. You can start for $20 a month for the first 3 months (cancel anytime). It could start you on a rewarding journey as it has for me.
1. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.