chapter 5Credit Spreads
Some traders are intrigued by the odds of success that short option traders enjoy, but are not willing to accept theoretically unlimited risk on a trade that provides limited profit potential. An alternative to selling naked options, the term “naked” referring to the fact that there is unlimited risk, is the credit spread. A credit spread involves the sale of an option with the purchase of a distant option of the same kind. In other words, if a trader sells a call option, a call option with a higher strike price can be purchased to limit the trader’s risk.
Limited Risk Premium Collection
Essentially, when executing a credit spread a trader is giving up a portion of the collected premium for peace of mind. ...
Get Trading Commodities, Commodity Options and Currencies (Collection) now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
