Category: Trading Insights

Credit spreads always sound super attractive… earn a consistent x% per week, month etc but what few realize is the risk levels associated with these trades. We’ve traded these before and the same thing happens… weeks go by with a consistent 4 or 5% return but then the unforeseeable happens… the market drops and you take a max loss of 100% of your risk which wipes out months of gains. The risk reward of the trade is typically something like this: you risk $2500 for a gain of $100 and win lets say 80% of the time (depending on how far out the money you are selling your short calls). Well for every 5 trades you lose 50 to 100% of your risked capital. Does that sound like a deal? Stay away from these and the folks that hawk them. We’ve been there done that. Stick with our program and over the long haul you’ll do much better and will sleep at night.