Is the Credit Spread Really a Mirage?
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I want to share with you today how credit spreads turn my trade profits into the air. I wish to discuss with you the significance of adjustments and what the risks involved are if you fail to manage your option positions properly. Trading Option Credit Spreads Taking into consideration its attributed risks, credit spread is considered by many as a high probability trading strategy. If traded by itself without any other option position, an options credit spread can be a bit riskier than you may think of. Credit spread is a very simple trading strategy where most beginning option traders have quickly learned; yet, they have no idea what danger this strategy is giving them. With its simplicity, credit spread is particularly popular on the web with a lot of sites teaching the strategy. Its popularity though is not based on its selling capacity but plainly due to its ease. So, teaching neophyte option traders about credit spreads is relatively a good business to date. Promises of super profits can be so inviting to them. But, leaving option traders trading with credit spreads alone has resulted in a lot of them losing huge amounts of money every year. And the risks brought by credit spreads often result in an even deeper level of complexity in a trader's life. People don't talk about how they can be way behind on the trade sometimes the whole time they're in the trade. People don't talk about how they get down to the very last day and they are risking 90% just to make a small 10%, and they don't talk about how they can't sleep at night and how they are praying to God for their stock to go up tomorrow. Finally, one of the most important things that nobody tells you about the credit spread is that a 90% probability doesn't mean that you're going to make money nine times in a row and then lose one time. The sad truth is that you might lose 90% on your first trade. This happens often to new option traders. Many do not speak of how they lag behind on the trade and even the whole period when people are in the trade. There are unheard stories of people risking 90 percent just to settle on a meager 10 percent until the very last day on the trade. There are those who spend sleepless nights, praying for heavenly blessings that their stocks will crawl up the next morning. But worst of all, taking the credit spread option with 90 percent probability of trading profits mostly brings nine times more losses for every single money-making trade. Most beginning option traders suffer this loss at some point and never recover. In conclusion we'd like to finish by saying that please do not close your mind to other types of trades! The Credit Spread is just the iceberg of what is out there. In fact, it's the simplest form of spread trading and not even close to being a safe one. It's a great trade for adjustments, but be warned if you plan on doing these alone!