What is a spread in options trading account


What is a spread in options trading account


By John Id, CTA, PhD, Founder of OptionsNerd.comToo 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. KEEPREADING TO DISCOVER SOMETHING NEWWhen you enter any kindof spread, you are taking advantage of two of the greatestinefficiencies possible in the trading of markets.

Any professionaltrader will tell you that the most money is made when the underlyingvehicle is mispriced — overpriced or underpriced. Spreads takeadvantage cacount mispricing. When you enter a spread, you are both longone leg of the spreadThis article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (April 2014) ( Learn how and when to remove this template message)Options spreads are the basic building blocks of many options trading strategies.

A spread position is entered by buying and selling equal number of options of the same class on the same underlying security but with different strike prices or expiration dates.The three main classes of spreads are the horizontal spread, the vertical spread and the diagonal spread. Similarly, put spreads are spreads created usingput options.Option buyers can consider using spreads to reduce the net cost of entering a trade. Naked option sellers can use spreads instead to lower margin requirements so as to free up spred power while simultaneously putting a cap on the maximum loss potential.




What is a spread in options trading account

What is a spread in options trading account

What is a spread in options trading account



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