Hi,
Many stock market veterans say that one must ride winners and cut losers. But if I am executing a trade using credit spread, how do I ride the winner since I have to cut the trade upon the expiration date. Please guide on this. To give a background, I run a trend following strategy on daily timeframe, but execution is using credit spread. I close my winning trade way too early since the expiration date has arrived. What’s the hack to run the winners in credit spreads?
Hey @RahulNR
When Veteran traders advocate for cutting losses and riding the winners, they traditionally refer to stocks.
However, you can use spreads, I believe the optimal strategy would be to deploy techniques such as multiple expiry trades, usage of far month options, and rolling of contracts i.e closing current month contract and taking positions in near/next month contract. This approach will allow you to successfully ride your winning trades and cut the losing ones.
1 Like
The best way to ride a winner with credit spreads is to just roll it over. Close the current spread and open a new one in the next expiry instead of cutting it early. If the trend is strong, stay in the game. Maybe even adjust strikes to keep the risk reward balanced.
1 Like
Thank you. When you say rolling of contracts, you mean exiting current spread and opening another spread with SAME strikes?
Ahh that can be a bit tricky depends on the movement however i would suggest ATM.
1 Like