CHAPTER 9
Debit Spreads
Adebit spread strategy is one of the most common launching points into intermediate option trading. It's certainly important to have a comprehensive understanding of single-leg option strategies for those market conditions that allow for aggressive bull or bear positioning. In addition, though, the use of spread strategies will often increase the probability of success and help further mitigate risk during times of less market certainty.
The key advantage of a spread strategy is that it gives you the ability to move away from having to rely solely on the direction of the underlying and allows you to modulate your risk/reward in a more diverse range of market conditions. Put more concisely, your goal is to risk less and profit more often. Take note that the last sentence was phrased as profit more often versus more profit.
As with all strategies, not just spreads, you have to choose the balance between the strategy's strengths and weaknesses. Many traders fail to appreciate this fact. When we present at live events, we're constantly asked, “What's the best strategy?” The questioner is confused when we reply, “All of them!” We've always found it interesting to observe the progression of an investor or trader as she grows her skills and evolves into a skilled technical option trader. The typical evolutionary path we've observed is that a long-term fundamental stock investor first steps into the short-term technical world and becomes a stock trader. Then she ...
