An option spread is a strategy used in options trading. Options spreads are the basic building blocks of many options trading strategies \u00a0<\/span><\/p>\n A spread position is entered by buying and selling an equal number of options of the same class on the same underlying security. But with different strike prices or expiration dates.<\/span><\/p>\n Vertical spreads or money spreads<\/i><\/strong> have identical underlying security, same expiration month, but different strike prices.<\/span> Diagonal spreads<\/i><\/strong> have the same underlying security but different expiry dates and strike prices. They have name diagonal spreads because they are a combination of vertical and horizontal spreads.<\/span><\/p>\n Traditional options spread strategies involve buying and selling equal numbers of options contracts. When this isn\u2019t the case, it is called a ratio spread or a backspread.<\/span><\/p>\n Different option spread strategies suit different options traders.<\/span><\/p>\n In options trading, an option spread is the formation of the simultaneous purchase. And the sale of options of the same class on the same underlying security but with different strike prices and\/or expiration dates.<\/span><\/p>\n Any spread that is constructed using calls can be referred to as a call spread. <\/span><\/p>\n 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.\u00a0 <\/span><\/p>\n So as to free up buying power while simultaneously putting a cap on the maximum loss potential. <\/span>Spread option trading is a technique that can be used to profit in bullish, neutral, or bearish conditions.\u00a0 <\/span>It basically functions to limit risk at the cost of limiting profit as well. <\/span><\/p>\n Spread trading is opening a position by buying and selling the same type of option.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":" DEFINITION of the Option spread An option spread is a strategy used in options trading. Options spreads are the basic building blocks of many options trading strategies \u00a0 WHAT IT IS IN ESSENCE A spread position is entered by buying and selling an equal number of options of the same class on the same underlying […]<\/p>\n","protected":false},"author":4,"featured_media":7021,"parent":3038,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"content-type":"","_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"class_list":["post-3479","page","type-page","status-publish","has-post-thumbnail","hentry"],"yoast_head":"\nWHAT IT IS IN ESSENCE<\/b><\/h4>\n
There are three main classes of options spread used by traders:<\/span><\/h3>\n
\nHorizontal spreads or calendar spreads<\/i><\/strong> have identical strike prices but different expiry dates.<\/span><\/p>\nHOW TO USE<\/b><\/h4>\n
Similarly, put spreads are spreads created using put options.<\/span><\/h3>\n