Get some tips on trading option credit spreads.

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.

In most cases the “credit spread” is the first spread you will learn. It is very simple to learn, but in the beginning you will not realize how dangerous this type of trade can be. You will find many teachers will teach this way of trading, since it is easy to learn and easy to sell, but they do not tell you the risk it can expose your account to. Teaching beginners how to trade “credit spreads” is a very good business, but if you trade “credit spreads” and nothing with it to protect your trade, you can lose a lot of money. Not only can you lose a lot of money, but it is a very stressful way to live. Let’s see 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.”

What you do not see is how you can be behind in the trade the whole time. The teachers do not tell you that. They don’t tell how they really feel, how worried and difficult it is to sleep, all the way to the last day they are praying for their stock to come back and go up before the end of the trade. 90% of your money is being put at risk to make a small 10% profit. You can lose 90% with your first trade. The teachers do not tell 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 all the time 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 that you have learned about the high risk in “credit spreads”, I would like you to know that there are many other types of trades that are a lot safer than the this one. If you do trade “credit spreads”, please learn how to combine them with other trades so they are not so risky.

Do you want to find out more about Options Mentoring? Then visit the San Jose Options web site on how to trade options safely. They develop very skilled Option Traders.