Here's why I LOVE option credit spreads... you don't have to be right people!
Let me explain...
So yesterday I set up a SPY credit call spread. I sold to open 10 June 189 calls, and then turned around and bought to open 10 June 190 calls, collecting a total premium of .52. So after commissions my total premium collected was $500. As you can see from my craptastic chart, I set that play up at the perfect time. It went green immediately!
OK, so let me get back to this whole "not having to be right" thing. Here's what I think is going to happen. I believe the SPY is going back down to the 182.50 level, and SOON! So my plan is to close the trade when I've captured right at half of the original $500 premium! I figure that'll happen in the next couple weeks. BUT, if I'm wrong and the SPY continues to move sideways, should I be worried? Could I lose money? NO! The bottom line is this, as long as the SPY stays BELOW 189 by June expiration, I'm good! So even if I'm wrong about my SPY thesis, I can still make money. THIS is what I've based my entire trading strategy around! Now of course if I'm REALLY wrong, and "really wrong" looks like the SPY making new highs, then I'll lose money.
Conversely, had I BOUGHT a SPY put to play a directional move I'd ONLY make money if the SPY tanked hard, sideways action would be bad and I'd almost certainly lose money. Yes, you can make more buying a put, but for me the risk is not worth the reward. However, SELLING options, specifically credit spreads, gives you more room for error. You don't have to be perfect in your thesis.
And for a guy like me, that is PERFECT!