vertical spread option strategy
A spread is an options strategy that combines multiple legs to shape risk and payoff.
Quick facts
| Field | Value |
|---|---|
| Category | Options Trading Terminology |
| Use | Learn vocabulary to read chains and manage risk |
Definition
A spread typically involves buying one option and selling another option (often same expiry, different strikes). Spreads can reduce cost, define risk, and tailor the payoff to a specific market view.
Why traders use spreads
- Defined max loss (often)
- Lower entry cost vs naked options
- Better control over Greeks
Quick example
Info
Bull call spread: buy a call at strike A and sell a call at higher strike B.
Summary
- Spreads are “payoff engineering”.
- Prioritize liquidity and defined risk.