How To Construct A Credit Spread & To Recognize The Risk Involved
Credit spreads are very popular among beginning option traders because they are so simple and can yield pretty decent monthly returns. However, these monthly returns, which add up very slowly, are inevitably wiped out by one bad month or bad day.
It’s very important to understand the risk involved before you ever attempt to use this strategy. Now, that we have seen days like the Flash Crash, we really have to prepare for the next. The Credit Spread completely ignores safety against the unpredictable movements in the market today.