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Finance Forex Trading Credit Spread - Oh Man, I Want My Mommy...
Finance Forex Trading Credit Spread - Oh Man, I Want My Mommy...
| Credit Spread - Oh Man, I Want My Mommy... |
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| Written by Ted Nino |
| Monday, 16 May 2011 08:56 |
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Of all the many option trading strategies available, the credit spread is quite possibly the most popular, most discussed, most utilized - and most DANGEROUS strategy of them all. The thing is, when rookie option traders first hear of the credit spread - very few seem to able to resist the temptation to jump right into trading them - with too much real hard earned money on the line - and not nearly enough education. 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 stop. Before you start to get the wrong impression, please, let me clarify something here. I absolutely LOVE credit spreads. ALOT. In fact, the credit spread is right up there as one of my favorite trading strategies. And I think it REALLY IS a good solid 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. Even with the ten percent monthly returns and the high probabilities - all that needs to happen is for a problem month to come along (and it WILL, believe me) - and the next thing you know you'll be staring at a gigantic loss and a zero balance account! However... All isn't lost. There IS hope... As I mentioned earlier - I really do LOVE trading the credit spread strategy. And - I consistently make money from it. So apparently, even with that atrocious risk to reward quandary, there must be a method to generate consistent income with this trade. And there is. It all revolves around how you go about handling the trade. As soon as you discover the 'right way' to place these trades initially - and then how to properly go about managing and adjusting them - that risk to reward dilemma instantly vanishes and goes away. You just need to arm yourself with a small amount of trading know-how. A few credit spread trading tricks that will allow you to quickly and easily adjust yourself out of sticky situations and smother any problem month threat that comes along, permitting you to experience the Credit Spread option trading strategy for all that it's 'really' cracked up to be. About the Author: To learn how to properly trade the Credit Spread Strategy for consistent monthly income, go to this Weekly Options website and watch our Free Video and get our Free Report. Kindly provided by LJ-Marketing.dk You are welcome to use this article on your own website, if you include the link just before this text. |
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