average joe investor: managing put credit spreads: avoid these mistakes when the stock market falls

When the Stock Market Falls, here are 4 Keys to Managing Put Credit Spreads ------------------------------------------------------------------------- This communication/content is for informational purposes only and is not intended as personalized investment advice, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This communication should not be relied upon for purposes of transacting in securities or other investment vehicles. Trading options carries a high degree of risk and may not be appropriate for all investors. Options can lose value rapidly and a position may expire worthless. Some strategies can result in losses greater than your original investment. Past performance is not indicative of future results. This video is for educational purposes only and should not be construed as financial, investment, tax, or legal advice. Consult your personal financial advisor or other qualified professional before making any investment decisions. Do not trade with capital you cannot afford to lose. ------------------------------------------------------------------------ Join Income Academy Today! ------------------------------------------------------------------------ 1. Stay Calm Volatility Is the Environment, Not the Enemy When markets fall, volatility expands. For put credit spread sellers, that is not automatically badit is the expected operating environment. Whats actually happening in a selloff IV spikes option premiums expand Delta moves faster than price Mark-to-market losses look worse than actual risk Fear causes traders to override rules The key mistake Most traders react emotionally to P/L, not to position structure. A put credit spread has: Defined max loss Known width Known expiration Known break-even If nothing has structurally changed (i.e., price has not violated your short strike or invalidated your thesis), panic is optional. Calm = following probabilities Short options are designed to look bad before they look good Early losses failed trade IV crush after stabilization is often your best friend Bottom line: If you sized the trade correctly, there is no emergency. Calm allows mathnot emotionto run the trade. 2. Have a Trading Plan Decisions Must Be Pre-Made Falling markets punish improvisation. A trading plan removes discretion when emotions are highest. Your plan should answer these questions before entry: Entry rules DTE (e.g., 45 DTE, 35 DTE, 21 DTE) Delta of short strike (e.g., 1530 delta) Market condition filters (trend, support, IV percentile) Max allocation per trade (% of portfolio) Management rules Profit target (e.g., 50% of max credit) Loss threshold (e.g., 2 credit received) Adjustment rules (roll, add time, reduce size, or do nothing) When NOT to adjust Exit rules Planned exit date (e.g., 21 DTE) Exit regardless of P/L Hard stop for structural failure Why this matters more in drawdowns In selloffs: Prices gap Headlines accelerate fear Traders second-guess good trades A plan prevents: Closing winners too early Rolling losers endlessly Oversizing because premiums look juicy Bottom line: You dont decide during a selloffyou execute. 3. Back Test as Much as Possible Context Beats Confidence Backtesting doesnt guarantee results. It calibrates expectations. What proper backtesting gives you Historical win rates Expected drawdowns Duration of underwater periods Performance across: 2008-style crashes 2020-style volatility shocks 2022-style grind-downs Sideways chop Why this is critical in falling markets Without backtesting: A 10% drawdown feels like failure A losing streak feels broken You abandon a strategy right before it reverts With backtesting: You know what normal pain looks like You recognize survivable drawdowns You understand which environments are worst-caseand how often they occur The dangerous misunderstanding This strategy worked until the market fell. No The market falling is part of the test. If a strategy only works in bull markets, its not an income strategyits disguised beta. Bottom line: Backtesting doesnt make you right. It keeps you consistent when fear tries to make you wrong. 4. Avoid Disaster (Early Assignment) This Is Where Traders Blow Up This is the non-negotiable rule. Why early assignment is catastrophic for spread traders Early assignment on the short put: Converts your position into long shares Destroys the defined-risk structure Introduces uncapped downside Consumes massive buying power Forces liquidation at the worst moment This is not a normal loss. This is a structural failure. When early assignment risk skyrockets Deep ITM short puts Near expiration High dividend stocks No protective long put coverage remaining