The ability toThis article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (April 2014) ( Learn how and when to remove this template message)Options spreads are the basic building blocks of many options trading strategies. A spread position is entered by buying and selling equal number of options of the same class on the same underlying security but with different strike prices or expiration dates.The three main classes of spreads are the horizontal spread, the vertical spread and the diagonal spread.
By John Summa, CTA, PhD, Founder of OptionsNerd.comToo often, new traders jump into the options game with little or no understanding of how options spreads can provide a better strategy design. With a little bit of effort, however, traders can learn how to take advantage of the flexibility and full power of options as a trading vehicle. An exchange recognized spread type submitted for creation by CME Globex platform is acknowledged and disseminated as such in the market data Security Definition message.
All options spread types are available for all options products on CME Globex with some exceptions, for example:Option Strip Spread (GD) - energy options onlyConditiA put spread is an option spread strategy that is created when equal number of put options are bought and soldsimultaneously. Unlike the put buying strategy in which the profit potential is unlimited, the maximum profit generatedby put spreads are limited but they are also, however, american futures put option spread cheaper to employ.
Additionally, unlike theoutright purchase of put options which can only be employed by bearish investors, put spreads can be constructedto profit from a bull, bear or neutral market. Vertical Put SpreadOne of the most basic spread strategies to implement in options trading is the vertical spread. A verticalput spread is created when the short puts and the long puts have the same expiration date but different strikeprices.
Vertical put spreads can be bullish or bearish. Bull Vertical Put SpreadThe vertical bull put spread, or simply bull put spread, is used when theoption trader t.