When I got interested in trading credit spreads, like most I harbored some skepticism. A credit spread trade seemed to be the type that works—until rather dramatically it does not. Then I set off to figure out the correct way to trade SPY put credit spreads. The path was familiar: backtesting.

When I talk to people about my credit spread trading strategy I often hear the claim that credit spread trading works great for 5, 10, or 20 thousand dollars, but the strategy can’t be scaled up. Are these skeptics suggesting a lack of liquidity to fill bigger orders?

Here we explore the put credit spread trades I placed on the SPY durning the month of January 2015. This is my primary trading strategy for monthly income. By trading put credit spreads on the SPY I am typically in a trade for 23 days but no more than 45 days.

To study how delta affects an opening trade I did—of course—some backtesting. I took a $10,000 account and placed put credit spread trades from 2011 to current. I opened up spreads that were $2 wide, at least 4% out of the money, and no more than 45 days to expiration.

Almost all of my credit spread trading is focused on the S&P 500 via the SPY or S&P 500 futures. Why am I hyperfocused on the SPY? So I can sleep at night (well, try to sleep—I do have a young son and a daughter on the way).

Every great trader has a bag of tricks. Each of these opportunities, if you will, is a predefined market condition signaling when to enter a trade and when to close it. One that has been in my bag for awhile is buying the SPY when the Relative Strength Index (RSI) indicator hits 30.

The day I learned to pay attention to volatility was the day I started to be consistently profitable in options trading. Most options traders start out trading stocks and they learn that if a stock is associated with good news its value often increases, whereas bad news sends a stock down.