Options Strategy Labs: 2007

A past Options Trading System Lab ("Trading 20-day breakouts with credit spreads", Options Trader, April 2006) showed that entering credit spreads (bull put or bear call spreads) in the direction of these moves had merit.

The original test compared two approaches: trading the underlying market (in this case, the S&P 500 tracking stock, SPY) vs. placing credit spreads when the system generated a bullish or bearish signal. The credit-spread approach beat trading SPY outright by a wide margin 70 percent vs. 3 percent, respectively.

The following refinement of the system tries to improve the creditspread technique by moving its components out of the money (OTM), which lowers the premium collected but should also boost the strategys success rate.