13 lines
868 B
Plaintext
13 lines
868 B
Plaintext
Verticals and Beyond
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Traders who want to take full advantage of all that options have to offer can
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do so strategically by trading spreads. Vertical spreads truncate directional
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risk compared with strategies like the covered call or single-legged option
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trades. They also reduce option-specific risk, as indicated by their lower
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gamma, theta, and vega. But lowering risk both in absolute terms and in the
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greeks has a trade-off compared with buying options: limited profit
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potential. This trade-off can be beneficial, depending on the trader’s
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forecast. Debit spreads and credit spreads can be traded interchangeably to
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achieve the same goals. When a long (short) call spread is combined with a
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long (short) put spread, the product is a box. Chapter 10 describes other
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ways vertical spreads can be combined to form positions that achieve
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different trading objectives. |