10 basic options strategies

4. Spread

Spread trades allow you to put on a directional trade, but with a little protection. This means that if you think a market move is likely in one direction, you can put on a spread to take advantage of it if it moves your way, but limits your risk if it does not.

Bull Spread: Long call A, Short call B; Long put A, Short put B

Put on a Bull Spread if you think the market will go up or at least is more likely to than to fall. Maximum profit is reached if the market ends at or above B at expiration, whereas loss is capped if the market ends at or below A at expiration.

Bear Spread: Short call A, Long call B; Short put A, Long put B

Put on a bear spread if you think the market will go down, or at least is more likely to than to rise. Maximum profit is reached if the market ends at or below A at expiration, whereas loss is capped if the market ends at or above B at expiration.

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