Why I don't trade spreads (May 16, 2009)

One reader raised an interesting question on whether I trade spreads.....Well, I don't.

My strategy of trading is to follow the flow of the market...rather than trying to think I am a Market Maker....

Market Makers have more advantage trading spreads because they are usually well connected and naturally know where the market will pin to on OpEx.

The market conditions have turned more volatile these days.....even if you are looking at a daily chart...what trades could you possibly find if you don't drill down to the smaller time frames...?

So I decided that the best strategy for me is to take the market on a day to day basis..."unless we see a clear trend" like the rally from March, 2009 lows.

The advantage of trading spreads is to manage "Time Decay", but that also means you need to hold on to your spreads longer....Hence exposing yourself to unnecessary risk beyond your control.
If you trade small positions, you will need time to breakeven due to broker commission.

My ideas can be profitable even if you are trading with 500 dollars. Anyway, whatever approach you use...whether spreads of just plain call and put options. Your ability to stay profitable still lies in 80% technical analysis and 20% fundamental analysis.

Good luck in your trading.