Credit Spread Strategy Review

I make money every month with credit spreads.  I love credit spreads.  Credit spreads are as good as easy money.  Credit spreads have a high probability.  I’ll show you how to double your money every year with credit spreads.

I am sure you’ve heard a lot of that online, on Youtube, etc.  There are more people trying to sell courses on the credit spread strategy than I think any other options trading strategy invented.  Why is this?

The Credit Spread Strategy Is Simple

Yes, this is a very simple trading method, and yes, it works more times than not.  You simply sell a contract and buy a cheaper one.  Then you end up with a credit in your account.  If the underlying doesn’t move past your short strike, then you keep your money and do the trade again the next month.  Sounds easy right?  Yes, it is.

But

There is a problem with the credit spread that people don’t like to talk about.  What happens if the market trends towards your short strike all month long?  When this happens, the credit spread strategy can get behind up to 50%.  Then, the worst thing possible can happen to the trader.  Once in a while the trader ends up in a bind where he/she must make a life-changing decision.  Do I take a 50% loss or do I risk a 100% loss on this trade and pray the market will rebound so I can make my 5%?

Account Blow Ups

If you rely on probability alone with this strategy, soon you will have nothing left in your account.  Just about each year you’ll have to take a huge loss or risk it all.  The fearless traders hold on to the last second and end up blowing up their accounts.  The risk averse traders usually exit sooner with a 30% or so loss.  Either way, the market will get you sooner or later if you rely on probabilities to manage this trade.

Credit Spread Strategy Review Rating

2 Stars.  I have studied credit spreads for many years.  They can be done successfully, but there is always a risk of 30% or more if we experience another flash crash during the life of the trade.  There isn’t anything you can do if the underlying drops or rises too fast, especially if it gaps.  The only way this trade can profit long term is if 1, you are lucky and never experience a large gap and 2, if you have stop loss rules in place that add up mathematically.  This strategy cannot work on probability alone.  I have back tested it for over 20 years and it always blows up the account, at least on SPX it does.  Who knows?  Maybe history won’t repeat itself, but I have a feeling it will in this case.