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Option Spreads Explained

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This post was originally written on April 1, 2015 at

Option spreads explained

Option spreads goes to the heart of Options trading. Once you've mastered Option spreads, you're now in a position to maximize your return opportunities from Options trading. In this video below, you'll find the basics of Option Spreads explained in simple terms. Bear in mind, this post and video is only a starting point to understand Option spreads, and there's a lot more to Spreads.

Many newcomers to Options are scared of spreads - when in fact, the primary advantage of spreads is either to reduce costs or reduce risks. There are two kinds of Option spreads explained in this video- Credit spreads and debit spreads. Both these types have vastly differing risks and rewards.

And within these categories there are 4 Option spreads - the Bull Call spread, the Bear Call spread, the Bull Put spread and the Bear Put spread. The Bull Call spread and the Bull Put spread are bullish, and the Bear Put spread and the Bear Call spread are bearish.

But why use Option spreads ? And what advantages do they provide the options trader ?

Here's a video that briefly describes the concept. For more information on these spreads, please refer to the Options intermediate module. Option spreads explained in great detail in this module, including Live trades for both the debit spreads and both the credit spreads.

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Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.