Options Spreads: Conclusion
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

Options Spreads: Conclusion


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

If you plan to use options spreads, you will discover that they have some major advantages over outrights. In fact, the full power of options as a trading vehicle doesn't really become known until you develop a good understanding of the workings of spreads. Most importantly, the selling side of option spreads has the greatest potential because you can profit from both time value decay and leverage of holding a long option in, for example, a diagonal spread. Even if using debit spreads, however, there are excellent hidden advantages mostly overlooked by novice traders. Certain debit spreads, for instance, can give you the ability to profit from time value decay (on a short out of the money leg) and potentially gain on the long side (from an in-the-money leg).

The advantage with the in the money debit spread is that you can cover the short option with a long in-the-money option instead of holding the stock itself, which entails much greater risk. And reducing risk is really what spreads are all about.

Risk reduction that is greater than the reduction in potential reward, ideally, means that you develop a trading advantage. Spreads offer that possibility if done correctly. Overall, given the ideas presented here, you should be able to expand your available trading options, and provide yourself with further opportunities for a payoff in the long run.


  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. What are the most common momentum oscillators used in options trading?

    Read about some of the most common technical momentum oscillators that options traders use, and learn why momentum is a critical ...
  2. How are Bollinger Bands® used in options trading?

    Use Bollinger Bands to identify volatility changes and place options trades at the right time; profit in bull or bear markets ...
  3. Who created Bollinger Bands®?

    Learn about John Bollinger and his widely followed indicator, Bollinger Bands. Explore how traders interpret the different ...
  4. What's the difference between binary options and day trading?

    Binary options and day trading are both ways to make (or lose) money in the financial markets, but they are different animals. ...

You May Also Like

Related Tutorials
  1. Options & Futures

    Binary Options Tutorial

  2. The New York Stock Exchange
    Mutual Funds & ETFs

    Top ETFs And What They Track: A Tutorial

  3. The NYSE floor excitement after a rebound. Being a stock trader can be highly gratifying.
    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