My Account Is Now Gone From Trading Option Credit Spreads
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The truth about credit spreads that isn't talked about. The truth on trading "credit spreads"...You will learn why it is so important if you do not know how to correctly handle your option positions. Even though it is a well-known trade, we will take a good look at what can happen using this particular spread. This seems to be a really good trade, but until you work with this trade, you will not know the high risk it can be. If it is traded alone, this options "credit spread" can be very risky. By trading it alone, I mean that it is not being protected by another option trade. Teachers will teach the "credit spread" first to most beginners. It is an easy trade to learn, but at first as a beginner in trading options you will not realize that this type of trade can be very dangerous. You will find many teachers that teach this course on the internet. The reason for this is that it is easy to learn and easy to sell, not that it is a safe way to trade. This is a great business teaching "credit spreads" to a beginner, but if all you do is trade "credit spreads" you can lose a lot of money each year. Not only can you lose, but it is a very stressful way to live. Let me show you why. It is a well known that you can go into a "credit spread" with a 90% certainty that you will make money on the trade. As a beginner in option trading you will believe this, but do not close your eyes to the other side of this picture. You may have a 90% probability to make a profit on this type of trade, but you need to look at what is going on while the trade is in play. Teachers do not tell you about the high risk and stress that is involved. There are times you can be behind in your trade the entire time you are in the trade, but the teachers will not tell you that. They do not talk about how they really feel, how worried they are, how difficult it is to sleep, all the way to the very last day, and praying for their stock to go up the next day. You are really putting at risk 90% of your money to make a small 10% profit. The truth is you may lose 90% with your first trade. No one tells you that with the "credit spread." A 90% probability does not mean you will make money nine times in a row and then lose one time. You may lose it all the first time. This does happen with beginning option traders. The reason why this happens is that it is a very directional trade, which makes the "credit spread" a problem. Theta is on the good side, but it has Delta and Gamma working against it. Since the Theta only gives you such a small amount that it is working for you, it does not help that much because you are getting very high Gamma by trading this option spread which makes it a very high risk. When the price of the underlying changes, the profit and loss on the trade will also change very quickly; this is why it is so dangerous. You need to know how to protect your trade and beginners are not aware of this. Now we are through with this class on the high risk in "credit spreads", I would like to say that there are lots of other types of trades that are quite safer than this "option spread." If you do trade "credit spreads," be sure to combine them with other trades so they are much safer and not so risky.