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Chapter 6. Eight winning option trading ... > Look for opportunities to backspread

7. Look for opportunities to backspread

Backspreading is a seldom-used strategy, but when used consistently, it has the potential to make you rich. Recall, this involves selling a call or put at one strike price and buying a greater number of calls at a higher strike price, or buying a greater number of puts at a lower strike price. Look to establish backspreads for a credit to benefit from time decay, and only consider markets with the potential to move big. This strategy always has a predetermined and limited risk and is one of the few that can still prove mildly profitable (or at least keep your equity together) when you're dead wrong. The profit is unlimited on a major upside move. It is not the Holy Grail, and there certainly is risk here as well, but I know of one S&P option trader who traded backspreads only. He held his equity together quite well over a number of years and was always positioned for a major move in either direction. During the stock market crash of 1987, his bear backspreads worked so well he was able to retire as a young man!


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