Chapter 17
The Vertical Spread and Volatility
A vertical spread is a popular options investment strategy for the investor who wants to hedge his bets about how a given asset will perform over time. The vertical spread involves buying either a call or a put option contract and at the same time writing another call or put contract with the same expiration date but at a different strike price.
A vertical spread is dubbed a bull spread if the trader expects the price of the underlying asset to go up. In a bull spread with calls, the trader buys a call contract with one strike price and sells a call contract with the same expiration date but a higher strike price. In the case of puts, the trader sells a put contract with one strike price and buys ...
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