Chapter 8 Adding Edge to Spreads

The last chapter reviewed many option spreads. In this chapter, the discussion centers on how spreads can have edge to them, not the structure of the trade. Many books present the latter, but few give you the former. In this chapter, the basic spread is presented as a trade with edge.

Credit/Debit Spreads

A credit vertical spread involves a purchase of one option and a sale of another with the same expiration, but different strike prices, where the sold option is closer to the money than the bought option. This produces a net credit. A debit spread, on the other hand, is a spread combining a long option closer to the money, with a short option, setting up a net debit.

The assumed set of positions in this description ...

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