Vertical Spreads Limits Risk and Offers Many Benefits For Options Traders
Vertical Spreads are done using two options with the same expiration at two different strikes. Vertical spreads can be done as a bull put spread or a bear call spread depending on your outlook for the underlying you're trading. Vertical spreads can be done for a credit or debit depending on desired risk profile. Unlike traditional trades, a vertical spread can make money even if you are somewhat wrong. The converse is also true in that if you are very wrong, a large loss can occur. While vertical spreads offer limited risk, there is still the ability to close out a position at a small loss or modify position to reflect market. Vertical spreads can be rolled to the next expiration to allow more time to profit, or roll strikes up or down to better position vertical spread to current dynamics of the market.