The Option Trading Low-Risk Short Spread

Michael C. Thomsett

Is there such a thing as a low-risk short option strategy? Many traders and investors do not think so, but in fact there is one way to put together a short spread that will not break the bank. A combined covered call and uncovered put accomplish this, assuming that a few basic precautions are followed.

First among these are thorough knowledge of options trading in general and a complete awareness of all risks that are involved. For anyone new to the options business, the first step is to download a copy of Characteristics and Risks of Standardized Options. This is a disclosure pamphlet published by the Options Clearing Corporation (OCC). It can be downloaded in PDF format at the OCC ...