Credit Spreads Again

[wayneL]

When an integral solid structure, such as a wall is subjected to countless small impacts, the microfractures caused in the structure eventually increase to the point of failure of the structure. I witnessed this in the Wing Chun Academy in Midland WA. There is a pad against the wall where you can punch the wall to build up your fist.

One punch, no problem. 100 punches, no problem. 1000 punches, no problem. But eventually the wall behind the pad did crumble. My problem is that my forehead is seriously in danger of caving in due to repeated impacts due to the same phenomena. I am hitting my forehead on the desk so often that the integrity of the bone structure in by skull is liable to cave in at any moment.

The problem is that I keep reading articles by ersatz experts in the online media.

Here's a doozy:

The beauty of option trading is that it opens up a lot of alternative ways building wealth from the stock market. Recent events have shown that the "buy-and-hold" approach to stock trading carries substantial risk. With a volatile market, a safe "in-and-out" approach is much more desirable. Of all the option trading strategies available, trading credit spreads is by far the safest and simplest method. It has a risk profile significantly lower than stock trading, and it offers much better profit than any type of stock trading strategy around.

Selling credit spreads takes advantage of the fact that the value of any option declines as the expiry date of the option approaches. It does this particularly fast during the last 30 days of the life of the option. It has been said that 90% of option buyers lose their money. This means that those who sold the options to those unfortunate buyers win 90% of the time!

What are the advantages of credit spread trading?

• It is short term - trades are typically less than 30 days in duration, and take advantage of short term trends in the market;
• It is low risk - trades have a better than 90% of success - always! You know exactly what the risk, return and profit will be before you enter a trade - there is no guess work.
• Profit is up front - a trader gets his profit immediately, and only needs to protect that profit for a short period;
• Market fluctuations are mostly irrelevant. The market can continue its trend, stagnate, or even turn against you to a certain extent, and your profit is completely safe and untouchable.
• Simple technical analysis - other options trading strategies (and stock trading) require intense fundamental and technical analysis, significant understanding of the market, and the ability to "beat the news". Selling Credit spreads needs a very simple trend analysis procedure, which should not take longer than 10 minutes a day, and the ability to plan for upcoming events such as earnings reports.
• Time spent in monitoring the trade is very low;
• Profits range between 5% and 20% per month, depending on how actively the spreads are traded. Compounded, this leads to significant growth in a profile. Starting with $1,000 and gaining a steady but sure 15% per month, you can get your first million dollars in four years, without deductions for ulcer treatment.

What do you need in order to start building wealth by selling credit spreads?
you need an account with an options trading broker such as Thinkorswim or OptionsXpress.
you need a minimum balance of $1,000, in order to cover margin requirements for selling credit spreads.
you need to be able to identify a trend in the market and in your chosen stock.
you need to be able to look ahead for predictable events such as earning reports and dividend payments.
you need about 15 minutes per week.
...and that's it!
You do not need nuclear physics degree in fundamental and technical analysis; you do not need to spend hours pouring over graphs and indicators; you do not need to go bald, get an ulcer or a heart condition; and you definitely do not need to pander to your obsessive compulsion to constantly monitor your trade, making fiddly adjustments on the way!

Selling credit spreads is an excellent method for those who are committed to a safe, steady approach to building wealth.

I sell credit spreads every month, and even when a very few trades have gone against me, I still build an average 15-20% growth on my portfolio each month.

Some statements are true, some are false, some just downright stupid and dangerous.

Discuss. (I'll be fisking it later)

 

[matty2.0]

lol ... low risk ...
where did you get that article??

 

[Largesse]

Matty, what exactly are you an analyst of?
Because you seem to have no idea what you are talking about a lot of the time...

 

[mazzatelli1000]

When an integral solid structure, such as a wall is subjected to countless small impacts, the microfractures caused in the structure eventually increase to the point of failure of the structure. I witnessed this in the Wing Chun Academy in Midland WA. There is a pad against the wall where you can punch the wall to build up your fist.

Wayne, I have been on the end of the one inch punch. I can assure you [and you no doubt will know] it will only take one to break my structure!! LMAO

EDIT: Just read the article. Is this what you are describing

lol ... low risk ...
where did you get that article??

He is referring to vertical spreads - an option position
You're high risk LOL

 

[mazzatelli1000]

h**p://www.conservative-options.c*m/

Please read with caution.
Your skull is at stake

 

[Largesse]

Still waiting on a reply from Matty2.0....

 

[wayneL]

h**p://www.conservative-options.c*m/

Please read with caution.
Your skull is at stake

One more microfracture....

 

[skyQuake]

ASIC should really have the power to close these things down..

When things go belly up how are these retail guys gonna pay?

..wonder if i can long odd lot counterparty risk

 

[wayneL]

ASIC should really have the power to close these things down..



..wonder if i can long odd lot counterparty risk

Counterparty risk? Almost zero with options.

The thing is that there is nothing inherently wrong with any strategy, including (OTM it is presumed) credit spreads. There are risks, rewards and probabilities that may suit your view. If not, select a different strategy, or stand aside.

There is plenty wrong with spruiking half truths and fallacies in order to sell a book or course... or make yourself look clever. These are the red flags I'm seeing in the quoted passage.

 

[mazzatelli1000]

LOL
Wayne, I just read the rant on your blog
The head banging is infectious

I have to admire the "wealth gurus" marketing and motivating techniques.

From personal experience with some former work colleagues who got hooked, wealth teachers and their students alike, all seem to exhibit the following characteristics:

1) A fear and ignorance of Greeks

2) They only discuss the likelihood of their short strikes being touched

3) Every now and then they will quote something generic e.g. "it benefits from time decay, because this is what it is all about". Some might even throw in the word "exponentially" :bowdown:

4) There is always this talk of raking in more credit

5) But the most amazing thing is their steadfast attitudes to criticism/dissection from others and how they talk and attempt to teach others as if they were experts in derivatives trading for many years.

I suspect this is due to the marketing technique of the spruikers i.e.:
a) students are told that the rest of the population are mediocre and those students who have taken up this opportunity are ahead

b) those who criticise do not understand, and are really holding the students back from achieveing wealth

c) Because of this now exclusive membership - students have this "I know it all" attitude and love to try and teach you all the time [some do have good intentions].

d) Any criticism also serves to destroy their dream and maybe out of fear of looking foolish for paying for these seminars they plough forward anyway. Then the punchline that "you are not like the rest of the population" reappears and the cycle continues.

e) Especially with options, any further technical/theoretical details essential to undertsanding them are dismissed as impractical. Examples are then given of otm credit spreads that expire worthless and then the punchline "see? who needs to understand the Greeks etc, leave that to the mathematicians".
I don't know if the spruikers planned this, but one can get away with profitable credit spreads for a while, so this reinforces the spruikers message.

Those who blowup come back with a money management book in their hands.

What gets more scary are the spruikers who combine it with questionable property techniques e.g. wrapping and internet marketing [creating BS websites and blogs to attract advertisements, ezine articles and pdf's and affiliate programs]

 

[mazzatelli1000]

Apologies this has gone of the original topic a bit, but these "gurus" are notorious in promoting credit spreads especially bull put spreads in the equity/index markets

You don't have to be a math's wiz or a Real Estate or Stock Market guru to take advantage of this investment opportunity, just someone who is willing to be different from most people, by learning and applying these strategies, and being responsible for your own financial future.

 

[wayneL]

Yep agree with all of that.

It's just like Amway... build the dream, gotta build the dream .

 

[wayneL]

Apologies this has gone of the original topic a bit, but these "gurus" are notorious in promoting credit spreads especially bull put spreads in the equity/index markets

...and covered calls... e.g. "renting shares" FFS!!!!!

 

[mazzatelli1000]

...and covered calls... e.g. "renting shares" FFS!!!!!

...and selling puts...e.g. "selling insurance":disgust:

 

[cutz]

Has anyone here had first hand experience, can't believe these clowns get away with what you guys are describing, surely a lot of people have been burnt ?? (portfolio full of naked puts AKA CC )

 

[mazzatelli1000]

Has anyone here had first hand experience, can't believe these clowns get away with what you guys are describing, surely a lot of people have been burnt ?? (portfolio full of naked puts AKA CC )

Couple of years ago, there were work colleagues who took these seminars. As you know my explanations tend to be a bit confusing so they didn't like what I thought of CC's. A few got burnt, some others stopped trying because they couldn't transact because of our beloved aussie MM's penchant for not giving up a penny LOL. [I guess they are good for something ].

If you read through some of the posts in this forum [dated] there seems to be folk engaging in this sort of method. But they quickly disappeared after Wayne and sails explained it.

They are getting more advanced these days by advocating credit spreads and condors. I have nothing against condors but the spruiking is something like "sell credits on both sides, more credit for the same amount of margin - 2 for the price of one!!" with minimal reference to the fact that you have switched from a trending to range bound outlook.


Its a jungle out there LOL

 

[cutz]

our beloved aussie MM's penchant for not giving up a penny LOL. [I guess they are good for something ].

LOL,yeah you got to love them, i've always wondered when I'm dicking around with my orders whether it's a bot or a human on the other side laughing at me.