by Ted Nino
The <a href="http://www.youtube.com/watch?v=UvMWT8JkQO0">Credit Spread</a> option strategy is one of the most popular option strategies available to traders. Unfortunately, it is also possibly the most dangerous.
See here's the deal: when a new fresh faced option trader first hears of this trading strategy - he or she becomes so enamoured with it that they just can't seem to help but jump right into trading them - risking way too much money - and without much thought of what they are going to do if the trade starts to go wrong.
And unfortunately what always seems to happen to a high percentage of them is that they promptly wind up getting their trading accounts demolished and their heads handed to them on a platter.
Now wait -
Before you start to get the wrong impression, please, let me clarify something here.
I actually LIKE credit spreads. I like them ALOT.
I think that the credit spread really IS a great trade.
And all those stories and claims about making 5 to 10 percent a month while barely spending any time looking at market - and how the odds are so unfairly on the side of the credit spread trader - and how trading credit spreads is just like becoming the 'house' instead of the gambler - yes - I believe all those claims and stories too. In fact, not only do I believe those stories - I KNOW they are true - because I experience it myself first hand on a regular basis.
The problem is - there is something big that is being left out of all those claims and stories - and this something is causing way too many fresh new doe eyed option traders to misunderstand this strategy right from the beginning and blindly jump into them with completely wrong expectations.
See, while it may be true that the credit spread and iron condor strategies can kick off yields of over ten percent monthly and that they favor the trader by offering high probabilities of winning (in some instances as high as 80 and 90 percent) - what isn't being talked about is the risk to reward ratio of these trades - which can be as high as 10 to 1.
10 to 1! That means that in order to try and make just one dollar, you need to be willing to risk ten. Or, put another way - in order to make 100 dollars, you need to risk 1,000 dollars. Or - risk $10,000.00 to hopefully make just $1,000.00!
And as my mammy used to say - that risk to reward ratio is 'an awful bad egg'. In fact, it's an honest to goodness stinking rotten deal.
Just do the math. With a risk to reward like that, even with the great probabilities and wonderful monthly returns - before long a problem month could come along and completely wipe out your entire account!
But...
All is not lost...
Because - as I wrote previously - I REALLY DO like the credit spread strategy.
It's one of my favorite trades - and it continually generates profits for me.
So obviously there's a way around that horrible risk to reward issue and the inevitable problematic losing months.
And there absolutely is.
It's all in how you manage the trade.
That risk to reward problem quickly becomes a complete non issue as soon as you educate yourself on the proper way to initially set these trades up and how to correctly manage and adjust them.
You just need to take the time BEFORE jumping into the credit spread trading pool to equip yourself with the proper knowledge. A few simple 'tricks of the trade' - so when those problem months DO come along (and they WILL believe me) - you will know exactly what you need to do to immediately squash that threat, easily adjust yourself out of the problem, and experience the <a href="http://www.creditspread.org">Credit Spread</a> option trading strategy for all it's 'really' cracked up to be.
To learn a much 'better' way to trade the <a href="http://www.youtube.com/watch?v=UvMWT8JkQO0">Credit Spread</a> trade for monthly income, visit this <a href="http://www.creditspread.org">Credit Spread</a> training website for simple step-by-step instructions on how to correctly place, manage, and ADJUST credit spread trades.
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New Unique Article!
Title: Credit Spread - How To Lose Your ENTIRE Trading Account Quickly
Author: Ted Nino
Email: theeinfoco@gmail.com
Keywords: credit spread,option trading,stock trading,stock,trading,forex trading,forex,currency trading,stock market,investing,investment,finance,personal finance,wealth building,business
Word Count: 670
Category: forex
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