Solutions for your Business and Finance

Solutions for your Business and Finance

April, 2016

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The importance of spread trading strategies

Spread trading are the starting point for many option trading strategies and useful for traders to control their risk. Basically an option spread trading is purchasing one option and then selling other option of the similar underlying security typically at the same time.
You can try spread trading to be bullish, bearish or neutral on a index, stock, or any kind of security which offers trading options.

Spreads trading can also be used for a debit or credit. A credit trade leads to the option you sold contains a higher premium than the option you bought delivering a credit in your investment account. A debit trade is the contrary in that the option you bought already had a higher premium when compared with the option you have sold.

The objective of spread trading strategy is that it provides you a specified maximum risk/reward getting into the trade. Additionally, if you have a specific maximum risk/reward it may also protect against a large amount of your margin getting invested like you would during short options without any offsetting position. Your primary objectives with any investing are making the most of your sizable profit and also controlling your risk, so spread trading strategies are an effective way to meet those goals.

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