Why You Should Use Spreads

Published on: Oct 16 2013 by John Critchley

Why You Should Use Spreads

 

By: John Critchley

 

Where Options really distinguish themselves and separate from equities or other investment products is in spreads.  Well quite simply, spreads allow you to spreads off risk.  There is no better way to spread of risk than by using options spreads. Pun intended.

Stock market is a Darwinian environment favoring the evolving trader. Since markets rarely move straight up or down in an orderly manner, traders who maintain a flexible approach are better equipped to not only survive, but thrive.  Options’ versatility allows option traders investors to fine tune their positions for easy adaptation to an ever-changing market.

Why use spreads?

-If you straight buy calls or puts you risk losing entire premium. Time is against you, if volatility goes lower you lose, by using verticals you reduce the risk of losing the entire premium.

-Vertical Spreads are used to offset premium costs when buying options, or to hedge risks when selling options.

-The maximum gain and risk are known from the outset of the trade, and therefore allow for very specific risk management controls

-Spread the risk as the name implies.

 

-Risk reducer

 

-Excellent Stock repair tool

 

-Buying calls and puts covered calls are the meat and potatoes, whereas spreads are the filet mignon.

 

To read more about the exact specifics of certain spreads, I encourage you listen to Sogotrade’s Options Boot Camp Option Podcasts # 13, #14, #26 & #27.   Click to listen here: http://blog1.sogotrade.com/sogoblog/

 

I also encourage all our option customers to visit our dedicated Strategies section on the Options Platform.

 

Stay Tuned….

 

 

 

 

 

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Important Note: Options involve risk and are not suitable for   all investors. For more information, please read the Characteristics and   Risks of Standardized Options.

 

 

 

 

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