The pluses and minuses of credit spreads are not always discussed but should be.
Welcome to learning about credit spreads. With this class you will learn the importance of making adjustments and what may happen if you do not understand how to correctly handle your option positions. People tend to like the option spread that is called a "credit spread". We are going to take a good look at this type of spread today. There are teachers that think this is the best type of trade to do, but in reality, you do not know nor understand the high risk it can be. If it is traded all alone as an option spread, it can be very risky. This would 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.
You can go into a "credit spread" with a 90% probability that you will make money. Just about everyone that starts trading options believes this, but if you see how the trade really works, then you will see you have a good chance you may lose. You need to understand what happens during this type of trade while it is in play. You are never told about the worry and high stress that is involved with trading an option "credit spread."
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.
How can this happen? The problem is that a "credit spread" is a very directional trade. It has Theta on its side, but it has Delta and Gamma working against it. For the little amount of Theta that you get, you are getting more danger with very high Gamma by trading this option spread. When the prices of the underlying changes, the profit and loss on the trade will also change very fast, this is why it is dangerous. This type of trade is more risky than most beginners trading options are aware of.
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.
Welcome to learning about credit spreads. With this class you will learn the importance of making adjustments and what may happen if you do not understand how to correctly handle your option positions. People tend to like the option spread that is called a "credit spread". We are going to take a good look at this type of spread today. There are teachers that think this is the best type of trade to do, but in reality, you do not know nor understand the high risk it can be. If it is traded all alone as an option spread, it can be very risky. This would 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.
You can go into a "credit spread" with a 90% probability that you will make money. Just about everyone that starts trading options believes this, but if you see how the trade really works, then you will see you have a good chance you may lose. You need to understand what happens during this type of trade while it is in play. You are never told about the worry and high stress that is involved with trading an option "credit spread."
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.
How can this happen? The problem is that a "credit spread" is a very directional trade. It has Theta on its side, but it has Delta and Gamma working against it. For the little amount of Theta that you get, you are getting more danger with very high Gamma by trading this option spread. When the prices of the underlying changes, the profit and loss on the trade will also change very fast, this is why it is dangerous. This type of trade is more risky than most beginners trading options are aware of.
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.
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Searching for the best education on Stock Options, then visit www.sjoptions.com to find alternative trades to credit spreads like Broken Wing Butterflies and the Super V.
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