Many traders struggle with inconsistency, often resulting in continuous losses that erode their self-confidence.
This article introduces a powerful strategy designed to boost your winning rate to as high as 90%. By using this approach, you can execute highly effective trades with an exceptional risk-to-reward ratio. The key highlight of this method is achieving a remarkable 90% win rate.
Options traders rely on a crucial metric known as Delta to achieve a 90% win rate. Delta measures the rate at which an option’s price changes in relation to the price movement of its underlying asset. For instance, by selecting options with a Delta of 10, traders statistically have a 90% probability of a successful trade. This principle forms the foundation of professional options trading strategies.
The Tesla Example: An Application in Reality
Background:
Tesla’s stock faced significant challenges in 2022, experiencing a 70% decline. By year-end, it reached oversold levels, indicated by the RSI oscillator dropping below 30. As a result, many traders began 2023 with a bullish outlook, anticipating a potential price rebound for Tesla.
The Strategy:
To minimize risk, a professional options trader might employ a Put Credit Spread strategy. This approach involves selling a put option at a higher strike price (e.g., 105) while simultaneously purchasing a put option at a lower strike price (e.g., 100), thereby forming a spread.
Understanding the Trade: Delta and Its Impact
Delta Calculation:
The Delta of the 105 put is 10, indicating roughly a 90% probability that Tesla’s price will remain above this strike level when the option expires in 60 days. Selling these puts earns a premium, while the purchased puts provide protection against potential price declines below the strike level.
Trade Breakdown
- Sell 10 of the 105 puts for $2.93
- Buy 10 of the 100 puts for $2.34
- Net positive cash flow: $590
- Required capital: $4,410 (worst-case loss)
Results of the Trade
Tesla’s Performance:
By mid-February 2023, Tesla’s stock surged significantly, closing at $208.31—well above the 105 put strike price. Both the 105 and 100 puts expired worthless, allowing the trader to retain the initial premium of $590 as pure profit.
How the Metric Ensures a 90% Success Rate
The trader focuses on options with a Delta of 10, which translates to a nearly 90% probability of the options expiring worthless. This strategy is designed for consistent success, as demonstrated by multiple winning trades throughout the year. The appeal lies in its strong statistical likelihood of the options expiring worthless, allowing the trader to accept lower risk while steadily generating profits.
Example in Real Life: A Year of Winning Trades
Let’s walk through how the trader used this strategy throughout the year:
February Trade:
Sell 10 of the 105 puts and buy 10 of the 100 puts
Result: $590 in profit
April Trade:
Sell 10 of the 145 puts and buy 10 of the 140 puts
Result: $600 in profit
June Trade:
Sell 10 of the 125 puts and buy 10 of the 120 puts
Result: $470 in profit
Full Year Summary
Over the course of a year, he completed six trades, earning a total net cash flow of $3,370. The highest capital deployed in any single trade was $4,530 in June. This resulted in an impressive 74% return within 12 months.
Risk Management: Overcoming Losses
While this strategy boasts a high win rate, not every trade will be successful. If the stock price closes below the short put strike, the trade could incur a loss. To manage risk, professional traders establish critical levels to adjust their positions. For instance, if the Delta rises (signaling a higher likelihood of the trade failing), they may roll down their positions to lower, safer strike prices, increasing the probability of a favorable outcome.
Conclusion
The key to achieving a 90% win rate in options trading lies in understanding and applying the Delta metric. By selecting options with a low Delta of 10 and implementing strategies like the Put Credit Spread, traders can consistently create high-probability setups. The Tesla example, along with its year-long performance, demonstrates the effectiveness of this approach. It offers an impressive, low-risk method that delivers a sustained streak of success in options trading.
