Credit Spread Risks: Loss, Assignment, and Risk Management

The Automated Trading Podcast by Advanced AutoTrades

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This episode provides an extensive guide to the risks associated with credit spreads, an options trading strategy often confused with being risk-free despite having defined potential losses. Authored by an institutional options trader, the text covers critical dangers such as Max Loss calculations, the specific threat of Assignment Risk in American-style options like SPY versus cash-settled SPX, and the danger of Margin Calls when short strikes move in the money. Furthermore, the hosts stress that over-allocation and volatility shocks can compound "defined risk" losses, offering strict risk management rules, including limiting exposure to five per cent of account equity per trade. Finally, the hosts explain the best practices for adjustments and execution discipline, advocating for the use of automation to avoid emotional trading mistakes. Read full article: https://advancedautotrades.com/risks-of-credit-spreads/

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