Donchian Channel Credit Spread Trade Entry Analysis

Trade Analysis Video:

scaleI recently received an email from a reader wondering what short delta and how many days to expiration I recommend when trading the Theta Breakout system with credit spreads.  I replied to the email, but I thought it would be helpful to do a video walk through of the analysis.

The short answer to the questions is that everything comes down to expectancy and the short delta and numbers of days I choose depends on risk/reward.  That being said, I usually sell credit spreads with short option delta of 25-35 and 45-75 days to expiration.  Those numbers aren’t set in stone, but they’re a good starting point for analysis.

Watch the video below for a more detailed look at choosing between two call credit spreads in the Russell 2000 ($IWM).  Enjoy: