How to Achieve 45% ROI with Zero DTE Credit Spreads

Overview of the Trade

• The speaker achieved a 45% return on investment (ROI) in one day using zero days to expiration (DTE) credit spreads.

• A put credit spread was sold on SPX (S&P 500 Index), specifically at strike prices of 5775 and 5770, resulting in a five-point spread.

• The total credit collected from trading six contracts was $930, leading to maximum profit since SPX ended above the sold put price.

Understanding Profit and Loss

• Maximum profit occurs when SPX closes above the sold put price of 5775; maximum loss is incurred if it falls below the protection leg at 5770.

• The calculation for ROI is based on maximum profit ($930) divided by potential maximum loss ($2700), yielding a 45% return.

Trading Strategy: MAAC Framework

• The strategy involves four steps encapsulated in the acronym MAAC: Market Trend, Area of Interest, Criteria of Entry, and Stop Loss.

Market Trend

• Identifying market trends is crucial; traders should follow whether it's an uptrend, downtrend, or sideways movement.

Area of Interest

• Look for areas of support and resistance with higher than average implied volatility to identify potential trade opportunities.

Criteria of Entry

• Ensure there are valid reasons for entering trades, such as candlestick patterns indicating bullish or bearish intent.

Stop Loss

• Set stop losses promptly after entering trades to minimize potential losses effectively.

Analyzing Market Conditions

• On October 22nd (the day before the trade), an uptrend was observed in the market despite short-term consolidation.

Identifying Support and Resistance Levels

• Key support identified around 5770 due to previous swing lows; resistance noted at approximately 5878 based on prior highs.

Trade Execution Insights

• Additional support levels were confirmed around 5820; these levels guide bullish or bearish trading decisions depending on market behavior.

Candlestick Patterns as Entry Signals

• Strong rejection signals at key levels can indicate potential bearish trades; however, confirmation through candlestick patterns is essential before executing trades.

Conclusion: Applying MAAC Principles

Trading Strategy Insights and Analysis

Understanding Entry Criteria for Bullish Trades

• The speaker identifies a potential support level at 5780, expressing interest in trading bullishly if confirmation of the trend's continuation is observed.

• Areas of support and resistance are linked to higher implied volatility; the speaker references a video for deeper understanding of this concept.

• A second candlestick formation is crucial; entry criteria require it to break above the high of the previous candle for confirmation.

• The specific entry point is set at 5777, indicating that once this level is breached, a trade will be initiated based on market confirmation.

• A stop loss is established slightly below the formed candle at around 5770 to manage risk effectively.

Risk Management and Trade Evaluation

• The rationale behind setting a stop loss is discussed; if the market retraces back to 5770, exiting the trade allows for reassessment without significant losses.

• The risk-to-reward ratio is highlighted as favorable (1:3), with potential losses capped at $50 per spread against anticipated gains of approximately $160.

• Emphasis on strategy over results; acknowledging that both winning and losing trades are part of trading experience.

Analyzing Market Trends and Short-Term Strategies

• Discussion shifts to short-term market consolidation; breaking past support could indicate a downtrend forming lower lows.

• Entry criteria for bearish trades involve waiting for price action below support levels, allowing traders to capitalize on downward trends through call credit spreads.