I Thought This Income Strategy Was Safe… Backtest Says Otherwise!

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➡️Join Income Academy Today! ⬅️ ------------------------------------------------------------------------ Go from Average Joe to Income Investor: https://www.skool.com/incomeacademy/about?ref=a1aa76cca64d46018aec091e1616dc2b ------------------------------------------------------------------------ This communication/content is for informational purposes only and is not intended as personalized investment advice, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This communication should not be relied upon for purposes of transacting in securities or other investment vehicles. ------------------------------------------------------------------------ PUT CREDIT SPREADS (PCS) — COMPLETE BREAKDOWN 1. What Is a Put Credit Spread? A Put Credit Spread—sometimes called a Bull Put Spread—is a defined-risk, premium-selling options strategy. You construct it by: SELLING a put option at a higher strike BUYING a put option at a lower strike Both options share the same expiration This creates a credit, meaning you receive money upfront. Put simply: You’re betting the stock does NOT go down past the short strike by expiration. 2. Why Traders Use Put Credit Spreads Traders choose PCS because they offer: A. Income Generation You collect premium upfront, which can create recurring income. B. High Probability of Profit You win if the stock: Goes up Goes sideways Even goes down a little This makes PCS extremely flexible in most market conditions. C. Defined Risk Your maximum loss is known before placing the trade. D. Lower Buying Power Requirement Much cheaper margin than naked puts. 3. How a Put Credit Spread Is Constructed Example (using QQQ): Sell the $350 Put Buy the $345 Put You collect a credit (e.g., $1.00 or $100 per spread). Strike Logic The short strike (higher price) is where the real risk is. The long strike (lower price) protects you from catastrophic loss. 4. Profit and Loss Breakdown Maximum Profit = The credit you receive Example: receive $1.00 → max profit = $100 per spread Occurs When: The stock closes above the short put strike at expiration. Maximum Loss = Spread Width – Credit Received Example: Spread width = $5 Credit = $1 Max loss = $4 or $400 per spread This is your defined risk. Breakeven Point = Short Strike – Credit Received If your credit is $1.00 and your short strike is $350: Breakeven = 349 5. How You Make Money A PCS profits when: 1. The stock stays above your short strike The puts expire worthless → you keep the full credit. 2. Time decay (Theta) works in your favor Options lose value as expiration approaches. 3. Implied Volatility decreases IV crush reduces extrinsic value, making it cheaper to buy back the spread. You can close the trade early: When you reach a profit target (e.g., 50–75%) When the market moves strongly in your favor To reduce risk before news or earnings 6. The Greeks That Matter Most DELTA (probability proxy) A short strike around Δ 0.10–0.30 is common. THETA (time decay) Positive for the seller. PCS benefits from time passing. VEGA Negative exposure. Lower IV = good for spread sellers. GAMMA Risk increases as price approaches your short strike, especially near expiration. 7. Ideal Market Conditions for PCS Best Mildly bullish to neutral Markets trending upward Volatility elevated (premium rich) but not chaotic Price above key moving averages (21, 50, 100, 200) Avoid Ahead of earnings During major economic announcements When price is below major moving averages (downtrends) During volatility spikes or market crashes