Bull Put Spreads offer options traders an opportunity to put the ‘greeks’ on their side when the opportunity arises. As exemplified in this current case, when a stock appears to make a bullish breakout, the bull put credit spread aligns delta, vega and theta to make profit quickly.

As noted in my essay on Winning Trading Strategies, the essence of successful stock options trading can be reduced to a simple 1, 2, 3 strategy!

1. Create and Monitor a Stock Watchlist
2. Wait for a High-Probability Trade setup
3. Initiate a High-Probability Trade with an Automatic Exit plan

Step 1: As noted in Create and Monitor a Stock Watchlist, I have and routinely monitor a list of Liquid Stocks using a VectorVest Watchlist. Everyone should have and monitor their own watchlist.

Step 2: On reviewing the graphs of the top 10 high VST stocks on my Liquid Stocks List on March 1^st 2013, I noted CELG had broken above its recent baseline, apparently making a bullish breakout (see CELG chart 1 – stockcharts provided courtesy VectorVest). Anticipating a further move higher, I decided to initiate a high-probability trade on CELG. Of the many choices available, I favor the Bull Put Spread (Put Credit Spread) as it aligns the ‘greeks’ in my favor (see CELG Excel spreadsheet).

CELG makes a bullish breakout

Explanation for choosing the Bull Put Spread as a High-Probability Trade:

1. Should CELG fail to breakout to the upside, the trade will be profitable even if it merely stays where it was and above the 95 short strike
2. Downside protection to the short strike was 10% (although breakeven would be lower than the short strike by the premium received)

Trade Plan for the CELG Bull Put Spread Trade:

Prior to placing a trade, it is important to write down a trade plan that summarizes why one is entering the trade, the proposed details of the trade, and the plan for how to exit (close) the trade. See prior posts for how I do this.

Step 3: I initiated the trade following the steps described in How to Trade Stock Options Online.

1. I used a limit order to enter the trade, thus ensuring I knew how much credit I would receive
2. Once the trade was placed, I placed a GTC limit order to close the trade – since, I am unable (and unwilling) to monitor the market constantly
3. The GTC closing order was placed within minutes of the initial trade being placed (see red box on CELG GTC order picture)

CELG Bull Put Spread closed in 10 days!

Review of the CELG Bull Put Spread Trade:

So, how did I do? CELG continued its upward move (see CELG chart 2), and 10 days later my trade was closed automatically by the system when my GTC closing order was triggered (see green box on CELG GTC order picture). The trade was profitable with a 7.46% return on risk in 10 days, which would equate to a 272% annualized rate of return (see Table). I enjoy having a resting GTC order in the system, as I find that I am invariably out of the trade faster and with less stress than if I were to constantly monitor the market attempting to decide when to close on a daily basis.

CELG continues its up move!

CELG Bull Put Spread nets 7.46% ROR in 10 days!

GTC order closes trade in 10 days

I hope the above discussion on my Bull Put Spread has been useful to some – especially beginning options traders. Not much in life is guaranteed, but it is certain that time will pass … day by day, and as it does the effect of theta ensures we make money.  As before, I’ve added a picture of the broker’s confirmation as a way to authenticate that the strategies I’ve outlined on these webpages are real-world strategies that work, and not theoretical fantasies.

Happy Trading!