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Option Spread Trading

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Several different option spread trading strategies which investors can use for creating monthly income include the iron condor, credit spread (or vertical spread) – the butterfly spread – and others.

Option spread trading refers to the act of selling one option and buying one option. In the case of the iron condor strategy – these options would usually be in the same month. Credit spread option strategy would include the same month options as well – and the options would either be all calls or all puts. Diagonals would be comprised of the same underlying – however the months could be different months – and the same is true with calendar spreads.

Non directional trading investors find option spreadĀ  trading enticing because it is a way for them to use leverage to benefit from the theta decay of options while limiting their risk. These trades allow the option trader to sell premium and collect that theta – while purchasing cheap ‘insurance’ to cover themselves in a worse case scenario.

Option spread trading has become fairly popular recently and more and more retail traders are getting their feet wet in this type of investing – whereas not too long ago these type of option spread strategies were little known and traded only by professionals.

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