What Are The Different Types of Option Spreads?
January 23, 2013 - 2:08pm
Bull spreads, bear spreads. You’ve heard about these different types of spreads, but do you really understand the difference?
Option spreads are a way to take advantage of an asset’s direction by limiting your loss to a smaller amount while expanding your gain. Fully understanding the differences between spreads will surely define your options trading success or failure. Read on for a breakdown.
Bull Put Spread
You hold a put option and your projections show that prices will rise. When that happens, you know that your put option with the current strike will soon be worthless, so you decide to sell it. Selling it would result to a cash inflow.
Then you start thinking. What if prices fall down instead? The value of the put option you sold would have skyrocketed if that happened and you could have benefited from that big time. If the price plummets when you have sold it, you are in for ...
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