Last week marked the launch of the Income Masters channel, with live sessions held daily at12:30 p.m. Eastern. In addition to live trading, members got a market preview, position review and coaching, and a deep dive into a trading tactic.
Last week’s tactical session was on “Adjusting a Credit Spread: Techniques for a Better Fill,” where we discussed the factors that influence credit spread adjustments. The goal was to give members a better understanding of how and why we trade the way we do and give them tips and tricks to get the best possible fills.
Last week was also a big week in terms of closeouts. We exited 11 trades across our services, all of which were winners. In total, we netted more than $5,600 in cash in the live account.
Here are all the closed trades from the week of June 2-6:
We closed out two more of the trades from the latest round of Income Madness, leaving just two trades open. With that cash, we’ve now surpassed our goal of $1,500 in income generation, racking up nearly $1,700 in profits and averaging a 7.5% return per trade with an average holding time of just under eight days.
For those who tuned in to the Income Masters channel, the Coinbase Global (COIN) closeout was highlighted by Dave Durham during Thursday’s session. It certainly wasn’t our biggest winner last week. That honor goes to Markay Latimer’s Airbnb (ABNB) long call trade from the Options Player Workshop that earned $2,100 in just two days. But there was something interesting about the COIN trade.
We traded a bull put spread on the cryptocurrency exchange platform during the latest Income Madness session, looking to capitalize on the higher volatility in cryptocurrency-related stocks. As you likely know, a bull put spread is a neutral-to-bearish strategy that generally benefits from a stock moving higher or staying flat. (For more on the advantages of bull put spreads, check out the previous Weekly Income Report.)
However, COIN actually declined about 2% between when we entered and exited our trade, highlighting one of the benefits of this strategy: the impact of theta decay.
Theta decay, often referred to as time decay, is one of the “Greeks” in options trading that measures the rate at which an option’s extrinsic (or time) value erodes as it approaches its expiration date. Essentially, every day that passes, an option loses a portion of its value, assuming all other factors (like the underlying asset’s price and implied volatility) remain constant.
Theta is typically expressed as a negative number for options that you buy (long positions), indicating a daily loss in value. Conversely, for options that you sell (short positions), theta is considered positive, meaning you benefit from this daily erosion of value.
Credit spread traders are, by definition, net sellers of options. This means they are on the “positive theta” side of the equation, which is a significant advantage.
Here’s a breakdown of how theta decay benefits credit spread traders:
Direct Profit Source
When you establish a credit spread (like a bull put spread or a bear call spread), you sell an option with a higher premium and simultaneously buy an option with a lower premium, resulting in a net credit to your account.
Both the option you sold and the option you bought will experience time decay. However, the option you sold (the one generating the higher premium) typically decays at a faster rate than the option you bought (the one with the lower premium, usually further out of the money or with less time value).
This differential decay is what allows the credit spread to profit from the passage of time. As days go by, the value of the entire spread decreases, allowing you to buy it back for less than you sold it for, or simply let it expire worthless to keep the full net credit.
Profiting from Sideways or Favorable Movement
Credit spreads are inherently designed to profit even if the underlying asset moves sideways or in a slightly unfavorable direction, as long as it doesn’t cross your breakeven point and stays outside of your defined risk zone.
Theta decay ensures that even if the stock doesn’t move much, the time value of the options melts away, bringing the spread closer to its maximum profit. This “time premium” is literally what you are selling when you initiate the credit spread.
Accelerated Decay Near Expiration
Theta decay is not linear. It accelerates significantly as the option approaches its expiration date, especially for at-the-money (ATM) options.
This acceleration works strongly in favor of credit spread traders, particularly in the final weeks or days before expiration. The value of the options you sold can plummet quickly, allowing for rapid profit realization if the trade remains within your desired range.
Offsetting Other Greeks (e.g., Delta)
In essence, credit spread traders are “selling time.” They are betting that the time value (extrinsic value) of the options they sell will erode, allowing them to keep the premium. Theta decay is the fundamental force that drives this erosion, making it a powerful ally for credit spread strategies.
While price movement (delta) and volatility changes (vega) also affect options prices, theta provides a steady, predictable tailwind for credit spreads. Even if there’s minor unfavorable price movement, theta decay can sometimes offset these small adverse movements, helping the trade stay profitable or limit losses. With the COIN trade, this is exactly what happened.
Even though COIN went against us after we entered our trade, declining nearly 2% between our entry and exit point, we were able to close the position with an 8.4% return well ahead of expiration.
Speaking of the options Greeks, Dave highlighted a new entrant during Friday’s Income Masters review. In addition to delta, theta, gamma and vega, options traders now need to contend with “Tweeta.”
Tweeta is the impact of social media, particularly tweets, on options prices.
Sudden news or opinions (often shared via Twitter/X) from influential figures, unexpected announcements, or even viral rumors can cause immediate and often irrational spikes or drops in stock prices.
This sudden price movement, driven by sentiment or breaking news from “tweets,” can directly impact options values by altering their intrinsic value, causing rapid shifts in implied volatility and even changing the underlying stock’s direction.
Since it’s likely that headlines and social media will continue to have an outsized and often unpredictable influence on market dynamics under the current administration, traders should watch out for this unofficial, highly volatile “Greek.”
