In today’s class, we will be talking about the significance of proper management of market option positions. This article is particularly about credit spread, one of the most widely used option spreads in the market today.
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.
The Credit Spread is popular amongst new option traders. Without knowing the hazards involved in credit spreads, beginning traders are easily attracted to it. Because a credit spread is very simple, there are countless sites on the internet offering courses on this strategy regardless if the strategy will actually produce positive results. And these businesses have lots of clients who are unaware of the risks they are getting at the use of credit spreads. While the business of teaching credit spreads means sure profits, more option traders relying on credit spreads alone are losing money than those actually making money on the trade. But worse than losing money, traders are living a very stressful way of 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!
Learn more about Credit Spreads with Options. Stop by the San Jose Options Mentoring web site where you can find out all about it. Stop risking your portfolio and visit our Options Course for more information about Credit Spreads!