The Best 10 Option Trading Strategies

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2. Call or put spread

Call and put spread is established by buying in the money or near the money option and selling out of the money option. When the security price goes up, the money call option that you buy will generate profit, and the out of the money option that you sell will lose money. However, due to the difference of the delta value, when the security price goes up, the money call option price goes up at a higher rate compared to the out of the money call option.
When you deduce the profit from the loss, you still earn money. The purpose of selling the out of the money option is to protect the depreciation of time value in the money call option if the security price goes down. However, if the security price continuously goes down, this will cause an unlimited loss. Therefore, stop loss has to be set at a certain level. This strategy also has a maximum profit that is when the security price has crossed over in the money option strike price.

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