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Credit Spread Options: Secret Tricks of Popular Trading Strategies

By Ted Nino

The credit spread 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 enamored 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 it seems that a good percentage of them - if not most of them - promptly wind up getting their groins kicked in, their heads ripped off, their eyes poked out, and getting hurt really, really bad.

Now stop - wait - hold on just a second.

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 yes, I absolutely believe all those stories and claims you hear swirling around about credit spreads generating ten percent plus monthly returns and providing trades that have the probability of winning somewhere in the range of eighty to ninety percent. In fact, I KNOW those stories are true because I see it happen all the time in my very own trading account.

Here is the problem: All those fresh, green and excited new option traders have no idea what they don't know. This trading options for income thing is like an alien planet - with a whole new set of rules inside a brand new reality. And when the person who has introduced them to this new way of trading just tells them about the good but forgets to tell them about the bad - they wind up jumping in with way too much confidence, misunderstanding, and expectations that are completely wrong.

See what isn't being talked about with this trading strategy is that while yes, they can provide great monthly returns and high probabilities of winning- they also come attached with a horrendous risk to reward ratio - sometimes as poor 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!


There is still hope...

Like I said before, I LOVE the credit spread trade.

Over the last ten years it's been extremely profitable for me.

So obviously there's a way around that horrible risk to reward issue and the inevitable problematic losing months.

And yes, there certainly is.

It's all in how you manage the trade.

As long as you learn the CORRECT way to initially place these trades, then combine that with a super simple management technique and a few easy adjustment tricks - this risk to reward issue can be completely eliminated and no longer presents a problem.

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 iron condors option trading strategy for all it's 'really' cracked up to be.

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