RadioActiveTrading VS. Credit Spreads, Condors, Calendar Spreads

These types of strategies can work well in certain markets, but they can also clean you out in one fell swoop before you can react in other markets.

Let’s take credit spreads for example. If I am searching for one month out credit spreads with a high theoretical probability of success (say greater than 85% or so), I may be collecting $0.50 of premium while risking 5 points between the strike prices.

If you look at the risk-reward values of these positions, it is easy to see how you can be right 80 to 90% of the time and still LOSE money.

If we entered 10 credit spread trades with this type of risk and reward we may collect $5.00 per contract total. If we were right on 80% of those trades, but two of them gapped away from us during the month we keep the $5.00 per contract but lose $10.00 per contract on the two losing trades…we wiped out all of this months gains plus most of the gains from the previous month as well. Stop losses on options do not protect against a large gap down or gap up in price. If a sudden pre or after market gap violates both strike prices in a credit spread or Iron Condor trade, the stop loss is also violated and you suffer the max loss on the position.

I had a PowerOptions customer last year who took in close to $30,000 in Bear Call Spreads in September of ’08, another $25K – 30K in October, then gave all of that back plus some more in November. November was even a bearish month overall, but because of the large gaps up and down his stop losses were hit continuously for large losses on the positions.

Kurt has an example of a current customer who was using Calendar Spreads to leverage his capital rather than buying the stock. When the stock started too drop his position was down over 80% in value due to the loss of time premium and intrinsic value. He was planning to sell calls against the position to lower his cost basis, but the stock had dropped so quickly that he could not sell calls that were above the purchased call strike, which would have changed the whole dynamic of his trades.

The RadioActive Trading method focuses on limiting your risk first using the put for protection. You know going into these trades that you are not risking more than 5%, 6% or the risk percentage that matches your personal threshold. As the stock moves in price, Kurt applies various income methods to lower the initial risk, bulletproof the position and generate further incomes. The returns might not be as sexy looking compared to some other leveraged strategies, but the key to the methodology is that you are not risking an unnecessary amount in any position. One loss cannot wipe out two or three months of gains. You can keep more of your well earned capital and still take advantage of unlimited upside profit potential.

To put it another way, with Kurt’s techniques you can actually be wrong more often than you are right and still MAKE money.

We feel that the RadioActive Methodology is a better and more protective way to trade, but each investor has to evaluate for themselves which trading strategy matches their personal risk-reward tolerance.