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Buy and Hedge: The 5 Iron Rules for Investing Over the Long Term by Wayne Ferbert, Jay Pestrichelli

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25. Vertical Spreads

Harry Burns: “There are two kinds of women: high maintenance and low maintenance.”

Sally Albright: “Which one am I?”

Harry Burns: “You’re the worst kind. You’re high maintenance, but you think you’re low maintenance.”

—From When Harry Met Sally (1989)

There are many iterations for spreads, and investors need to be careful to ensure they are using the right combination of options to meet their risk parameters. As Harry (played by Billy Crystal) said to Sally (played by Meg Ryan) in the preceding quote, its easy to make the mistake that you’re one thing when in fact you are something else. In spreads, you’ll need to be sure of the bias you’ve established and exposure you’ve created but don’t let the warnings scare you away. ...

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