The $POT trade and why i dont use stops

On 9feb i noted that Potash $POT stock pulled back to test the short term rising trendline, think Jim Iurio pointed it out. Although my track record on trendline tests is lower than flat line support tests i entered a credit put spread. Its difficult for me to be comfortable putting on spreads on lower priced stocks so my strategy on this one was to select a short strike under some other technical support area in this case the upward sloping 50day moving average which was near 43..so my short strike was 42.50 ... the probability of max profit using Trademonster Analyse tab was about 85% if i recall correctly. so i :

sold the Mar 40/42.50 credit put spreads for .35 credit x 12 for $420

so the premise that the stock would test the rising trendline, bounce and move higher was wrong..couple days sideways then moved lower. i have previously mentioned i dont use stops on credit spreads.. as the stock pulled back to near 44 this spread was priced at .70+ which would show a huge loss...over the course of many months i kept track of all my credit spreads, both live and paper trades, i tracked where the stock ended up closing on opex..the results were that 95% of the stocks still closed above their short strikes on opex day..including the ones i closed/stopped out/cut losses.. so almost all the ones i sold as a loser would rebound to be a winner. there will always be one that keeps moving and will have to be rolled to next month or closed altogether but in adding it all up, my losses from using stops or closing for loss far exceeded the occasional loss of taking the loss because stock did not rebound. so this POT trade is perfect example..took the trade, had probabilities on my side, had a decent lower support level to shoot against. stock pulled back, still stayed above my 42.50 short strike, never did touch the 50day (so the 50day DID act as support this time), i held and it rebounded. so on 2mar i closed the spread with stock almost the same price as when i entered but i have had 3weeks of time decay. Didnt get shaken out, held on to let time decay turn a loser back into a winner.

Common stops for others i see are when the spread loses 50% of value they close, or if stock hits the short strike. Spread pricing can swing wildly with a stock moving 1% but the spread moves 25% even while staying many points above your short strike so i am not comfortable using hard or mental stops. You may not be comfortable with this method but it works for me.. it puts the probabilities in my favor at opex and my history shows it works for me. Have to trade how you are comfortable.

Summary trade:

9feb - sold the Mar 40/42.50 credit put spreads for .35 credit x 12 for $420
2mar - bought back for .04 , total profit $372 , about 90% gain for 3weeks