hi guys i am new in option trades please let me now which advisory is best one in credit spread please
Anyone who is presenting selling weekly credit spreads as a low risk strategy is seriously misleading you.
Not all spreads created equal. If you trade weekly spreads, they are fairly risky because they are so close to expiration and a big move can quickly put the short legs ITM. Take a look at this service for example - http://www.5percentperweek.com/customer/customerMain.php?section=tradePage&step=viewClosedTrades Start scrolling down. You will see that they make 4-5% most of the weeks, but every 6-8 weeks they have a fairly large loss (30-40%, sometimes more, two losses of 75-95%). And this is exactly the danger of weekly options. They can bring you steady income for few weeks, but when they lose, the loss is brutal and can erase few months of gains.
Well wouldn't it depend on how you manage the trade? I see that they had 2 losses earlier this year but not in the range of 75-90%. But I do see your point. I really think that it always comes down to trade management whether you're in weeklies or monthlies or whatever. There's a point where you're wrong and you dump the trade. But sharp spikes can happen. Thanks for the input.
Look at the earlier losses: 4 big losses (25-35%) in 2013, 60% in 2012, 95% in 2011 and 75% in 2010. If the markets gaps, your short leg can go ITM and there is NOTHING you can do about it. No management skills will help. The negative gamma will kill you. Take a look a those articles about negative gamma: http://options.about.com/od/Greeks/fl/The-Greeks-Trading-with-Negative-Gamma.htm http://www.investopedia.com/university/option-greeks/greeks5.asp This article gives you a good example how negative gamma can kill your trade: http://steadyoptions.com/articles/post/general/why-you-should-not-ignore-negative-gamma-r86
Thanks for the information. It looks like the 5Percent website trades verticals. If you were in an Iron Condor, couldn't you get out of the side that spiked and retain the other side? In other words, if the market tanked and the PUT side was at risk, exit where you can and let the CALL side expire worthless. Of course, the CALL side might not be worth much, but could help balance out the loss because you retain part of the premium. What do you think?
It won't change the loss too much. If you get 0.20-0.25 credit per side on $5 trade, and have to close one of the sides at 1.50-2.00 debit, extra 0.25 will reduce the loss by 4-5%. So instead of 40% loss, it will be 35%. But doing both sides also reduces your probability of success, so they might have slightly higher winners, but lower winning ratio. My point is that doing weekly credit spreads (or iron condors) is a viable strategy for a small part of your account, but it's not a low risk strategy. Not even close.