Trading Options for Edge

Chapter 7 A Quick Review of Spreads

Throughout this book, I discuss how to evaluate different trades in the market given specific market conditions. While this book assumes that the reader has knowledge of most spreads, I think it is worth the time to describe each type of complex spread. In this chapter, I’ll briefly discuss what makes each spread, what makes each spread make money, and the goals of the trade at onset.

The Call Spread

A call spread is very similar to a long call. The construction of the long call spread is pretty simple, but offers two possibilities. A call spread can be done for a debit or a credit. The debit version involves buying a call close to the underlying price, usually at or slightly out of the money, although it ...