Option Spread Strategies
AAA
  1. Option Spreads: Introduction
  2. Option Spreads: Selling And Buying To Form A Spread
  3. Option Spreads: Vertical Spreads
  4. Option Spreads: Debit Spreads Structure
  5. Option Spreads: Credit Spreads Structure
  6. Option Spreads: Horizontal Spreads
  7. Option Spreads: Diagonal Spreads
  8. Option Spreads: Tips And Things To Consider
  9. Options Spreads: Conclusion

Option Spreads: Introduction


By John Summa, CTA, PhD, Founder of OptionsNerd.com

Too often, new traders jump into the options game with little or no understanding of how options spreads can provide a better strategy design. With a little bit of effort, however, traders can learn how to take advantage of the flexibility and full power of options as a trading vehicle. With this in mind, we've put together the following options spread tutorial, which we hope will shorten the learning curve.

The majority of options traded on U.S. exchanges take the form of what are known as outrights (i.e. the purchase or sale of an option on its own). On the other hand, what the industry terms "complex trades" comprise just a small share of the total volume of trades. It is in this category that we find the "complex" trade known as an option spread.

Using an option spread involves combining two different option strikes as part of a limited risk strategy. While the basic idea is simple, the implications of certain spread constructions can get a bit more complicated.

This tutorial is designed to help you better understand option spreads, their risk profiles and conditions for best use. While the general concept of a spread is rather simple, the devil, as they say, is always in the details. This tutorial will teach you what option spreads are and when they should be used. You'll also learn how to assess the potential risk (measured in the form of the "Greeks" - Delta, Theta, Vega) involved with the different types of spreads used, depending on whether you are bearish, bullish or neutral.

So, before you jump into a trade you think you have figured out, read on to learn how a spread might better fit the situation and your market outlook. If you need a refresher course on the basics of options and option terminology before you delve any deeper, we suggest you check out our Options Basics tutorial.

Option Spreads: Selling And Buying To Form A Spread

  1. Option Spreads: Introduction
  2. Option Spreads: Selling And Buying To Form A Spread
  3. Option Spreads: Vertical Spreads
  4. Option Spreads: Debit Spreads Structure
  5. Option Spreads: Credit Spreads Structure
  6. Option Spreads: Horizontal Spreads
  7. Option Spreads: Diagonal Spreads
  8. Option Spreads: Tips And Things To Consider
  9. Options Spreads: Conclusion
RELATED TERMS
  1. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
  2. Short Put

    A type of strategy regarding a put option, which is a contract ...
  3. Wingspread

    To maximize potential returns for certain levels of risk (while ...
  4. Volatility Smile

    A u-shaped pattern that develops when an option’s implied volatility ...
  5. Nadex

    Nadex stands for the North American Derivatives Exchange, a regulated ...
  6. Exchange-Traded Binary Options

    Exchange-traded binary options, regulated by the CFTC, let you ...
  1. How do you trade put options on E*TRADE?

    Learn all about put option trading at E*TRADE. Explore margin accounts and become familiar with the different types of option ...
  2. How do you trade put options on Ameritrade?

    Learn about option trading with TD Ameritrade. Explore the different types of options and their possible impacts on the investors ...
  3. What is the difference between a short position and a short sale?

    Learn how short selling and short positioning are different, specifically in regards to the nature of the commodity being ...
  4. Are there any risks involved in trading put options through a traditional broker?

    Explore put option trading and different put option strategies. Learn the difference between traditional, online and direct ...

You May Also Like

Related Tutorials
  1. Options & Futures

    Binary Options Tutorial

  2. Mutual Funds & ETFs

    Top ETFs And What They Track: A Tutorial

  3. Active Trading Fundamentals

    Introduction to Stock Trader Types

  4. Options & Futures

    Options Pricing

  5. Options & Futures

    How To Place A Covered Call Strategy With optionsXpress

Trading Center