8 Hedging With Spreads

The spread is any position with two offsetting options, which can be bullish, bearish, or neutral. So as a hedging mechanism, the spread is a flexible and varied form of option trade.

Spreads in their most basic form consist of the same expiration date but different strikes (the vertical spread). For example, a short call expiring in October with a 50 strike and a short call expiring the same month with a 45 strike set up a vertical spread.

Another variety is made up of the same strike but different expirations. This horizontal spread is intended to exploit the time value differences between the two positions. ...

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