Option trades wiki

For put spreads, the net premium is subtracted from the higher strike price to breakeven. The maximum gain and loss potential are the same for call and put spreads. For example, one uses a credit spread as a conservative strategy designed to earn modest income for the trader while also having losses strictly limited.

This is also a vertical spread. If the trader is bearish expects prices to fall , you use a bearish call spread. It's named this way because you're buying and selling a call and taking a bearish position.

If the final price was between 36 and 37 your losses would be less or your gains would be less. Traders often using charting software and technical analysis to find stocks that are overbought have run up in price and are likely to sell off a bit, or stagnate as candidates for bearish call spreads.

If the trader is bullish, you set up a bullish credit spread using puts. Look at the following example. Traders often scan price charts and use technical analysis to find stocks that are oversold have fallen sharply in price and perhaps due for a rebound as candidates for bullish put spreads.

From Wikipedia, the free encyclopedia. This article may be too technical for most readers to understand. Please help improve it to make it understandable to non-experts , without removing the technical details.

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Energy derivative Freight derivative Inflation derivative Property derivative Weather derivative. The resulting portfolio is delta neutral. For example, a January box consists of:.

A box spread position has a constant payoff at exercise equal to the difference in strike values. Thus, the box example above is worth 10 at exercise. For this reason, a box is sometimes considered a "pure interest rate play" because buying one basically constitutes lending some money to the counterparty until exercise. The net volatility of an option spread trade is the volatility level such that the theoretical value of the spread trade is equal to the spread's market price.

In practice, it can be considered the implied volatility of the option spread. From Wikipedia, the free encyclopedia. For the American football offensive scheme, see Spread offense. This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources.

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