Benefits of placing option spreads

Finance Articles | March 17, 2009

Selling options can be a very profitable journey. Placing combining those options into spreads can be a great way of doing this for these reasons.

Selling options can be a very profitable journey. Placing combining those options into spreads can be a great way of doing this for these reasons.

1. Higher Probability

Creating credit spreads allow you to gain a much higher probability of being correct then if you just buy the stock or buy an option for the stock. The reason for this is because the stock does not necessarily need to go in your direction for you to be profitable.

The stock only needs to not turn against you too much. If you sell a bull put spread the stock only needs to stay above the strike price that you sold to be profitable. If you are selling a bear call spread you only need the stock to stay below the level you sold to be profitable.

2. Higher Confidence

What does higher probability trading get you? If you are placing trades and are being right much more often then you are wrong you are going to get a bit of confidence.

This confidence is critical to trading the market. You can’t make any money unless you believe it is possible for you to make money first. Most people who say, “Well I’ll give it a shot” will not make money trading the stock market. You also need to have the confidence that you can improve your trading which is what it does.

3. More Options

Trading spreads gives you many more options in the stock market. Instead of trying to find the exact point that a stock will go up or down you can simply sell out of the money spreads on stocks at points you believe the stock will not pass.

This is especially helpful when the markets are being very volatile and unpredictable. It might be hard to find the best spot to buy but it can be clear where you should sell a spread at.

For more on spreads visit http://www.stocks-simplified.com/Option_Spreads.html

For more on the stock market visit http://www.stocks-simplified.com

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ABOUT THE AUTHOR

When I was young I wanted to learn how to trade the stock market. So I traveled around the country listening to professional traders talk about how they are making money in the market. Now I understand how easy it is to make money in the stock market and started a site http://www.stocks-simplified.com to help others learn.