Vertical Spreads

Conversely, they could lose 56% to 900%.

As someone said previously, they're great when your winning.

 

One uses Stops to prevent such large losses of course. As soon as I'm down 2% of my Total Equity on a trade, I exit.
The point is, if you set them up properly, you win 80-90% of the time with Vertical Spreads. You can't do that with any other type of trading that I know of.

 

try adding more longs instead of a 1:1 ratio on those verticals. backtest and see how you would have done.

credit spreads are high prob but also high risk as you have seen already. if you trade them enough, you will always have a time bomb waiting to destroy your acct.

 

How so? I thought one of the purposes of trading spreads was to limit your risk. Now I suppose if you trade REALLY wide spreads...

 

Because you have to trade on a lot of implicit leverage to make money.

 

Thanks for your post. Not sure what this means: (?)
"try adding more longs instead of a 1:1 ratio on those verticals"

As to:
"credit spreads are high prob but also high risk as you have seen already. if you trade them enough, you will always have a time bomb waiting to destroy your acct"

Quite right. One has to be very careful with the pricing.
9/1 risk/reward ratio? Win $10 if you're right, Lose $90 if you're wrong? Not cool.

Getting in for lower prices during Bull/Bear Flags + making longer term bets can help get the risk/reward ratio into the 1/1 range.

i.e. Betting $125 to make $125 on DLTR going from 83 to 85 by May 18th? How can you make a safer bet than that?

 

yes, there is a limit to your risk on a credit spread, but to make around 10% you are risking 90%. i know thats not always the case if you are closer to the money it'll be less risky but also less probable, a lot of traders just sell the 10 deltas. that makes credit spreads a risky trade and a potential account killer.

my suggestion is to add extra longs for more protection and to backtest both a standard 1:1 credit spread versus one with the extra longs(back ratio). i don't think this is a waste of time for you.

 

pm'd you cactiman

 

Thanks for sending the PM. Trying to read it, but no luck so far. Made you a "Buddy", but still just get this:

"Your administrator has disabled private messaging."

????????