Secret 67THE SPREAD ADVANTAGE
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Option spreading is another unique advantage of the option
markets. Option spreads enable you to create strategies where
you limit your risks and maximize your gains. Spreads allow you
to adjust your positions as the market changes to neutralize market
risks. Credit spreads, debit spreads, straddles, stripes and
straps are all types of option spreads.
A well designed spread is one with an excellent risk-reward
picture. For the option buyer, spreads are, to use baseball jargon,
for those who are satisfied with singles and doubles instead of
home runs. For the option writer, spreads can remove the unlimited
risk present with naked writing. The big advantage of
spreads is that spreads can be designed with a high probability of
profit and very limited risk. (At the end of the book, we will disclose
two of the best plays in the option markets, spreads with
these features.)
A spread is best defined as a combination of buying and selling
(writing) two or more different options at the same time usually
on the same underlying issue. Any professional option trader
should know how to spread and use it as a tool and as part of his
option trading arsenal. The difficult part of spreading is learning
how to design a spread and understand the risk-reward picture
for the spread, which takes some practice.
Option spreading is another unique advantage of the option
markets. Option spreads enable you to create strategies where
you limit your risks and maximize your gains. Spreads allow you
to adjust your positions as the market changes to neutralize market
risks. Credit spreads, debit spreads, straddles, stripes and
straps are all types of option spreads.
A well designed spread is one with an excellent risk-reward
picture. For the option buyer, spreads are, to use baseball jargon,
for those who are satisfied with singles and doubles instead of
home runs. For the option writer, spreads can remove the unlimited
risk present with naked writing. The big advantage of
spreads is that spreads can be designed with a high probability of
profit and very limited risk. (At the end of the book, we will disclose
two of the best plays in the option markets, spreads with
these features.)
A spread is best defined as a combination of buying and selling
(writing) two or more different options at the same time usually
on the same underlying issue. Any professional option trader
should know how to spread and use it as a tool and as part of his
option trading arsenal. The difficult part of spreading is learning
how to design a spread and understand the risk-reward picture
for the spread, which takes some practice.