This post was originally written for r/RealDayTrading Mar 29, 2021

I intentionally removed the symbol from the charts because I want beginners to focus on the method, not the actual trade. My market bias is neutral to slightly bullish for the next few weeks so I want a strategy that matches that market forecast (bullish put spread). I want a stock that has heavy volume, relative strength and a breakout through resistance. I will sell the bullish put spread below technical support and that short strike price is my stop (a close below that level). If the SPY closes below the 50-day MA I will also consider closing the spread. I am staying near term because I want to make sure that I can take advantage of accelerated time decay and selling below the 1 SD will also increase my odds for success. In this case I have to put up the difference in the strike prices less the credit received or $2.00 ($2.50 – $.50). My return is 25% ($.50/$2.00) in 3 weeks if the spread expires.

Here are more details and the supporting charts. I hope this process helps those of you who are starting to trade options.

  1. I am looking for a bullish search
  2. I want a stock that is moving higher on heavy volume when the market is down.
  3. The stock has broken through horizontal resistance and it bounced off of that support.
  4. The stock has a nice uptrend that lends support at $232.50 (short strike)
  5. The stock is through the downward sloping trend line and this looks like a bullish flag formation
  6. The $232.50/230 bullish put spread is 1 standard deviation OTM.
  7. The stock is strengthening vs SPY
  8. The stock is up when the SPY is down and it has been able to hold its opening gap up.
  9. The stock is strong relative to the SPY on 5 min chart
  10. The earnings date is after the options expiration.
  11. Spread is $.40 x $.70. I feel a $.50 credit is likely to fill. You have to put up $2.00 in margin to make $.50 in the next 3 weeks. April (16) expiration will have accelerated time decay on the options.

Read Part 1 of this series.

Read Part 2 of this series.

Trade well.

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