Trading Spreads Vs Stocks

Trading Option Spreads allows you to have many advantages over trading simple stocks. It can also be very rewarding.  Here are some of the main advantages.

1.    Non Directional

The major advantage to trading spreads is that they offer you a way to make money in the stock market without having to pick a direction.  Instead you only have to decide where a stock will not go within that same time period.

For example, you buy stock XYZ which is trading at $50.  You could buy the stock and profit if the trade goes in your favor, or you could create a bull put spread at the $45/$40 level.  This would allow you to make money as long as the stock stays above $45, which would give you some wiggle room.

2.    Higher Probabilities

 Because you do not have to know where a stock will go for you to make money the odds will be much higher.  It is much easier to determine where a stock is likely not to go then it is to decide where it is going to go in the short term.

3.    Higher Confidence

Trading stocks can be stressful because you might be wrong many times before you are right.  If you are having a losing streak it can be difficult for you to stick with it. You might decide to take a break right before you would have entered a trade that would have gone up 40% in 3 days and make up for all of your losses, and more.

If you are seeing a much higher success rate however it will be easier to stick with it.

4.    Spreads Can Give you nice returns

Trading spreads can give you nice returns in the stock market.  You will not get the huge moves, but you can get smaller more consistent gains, which can add up and give you a great annual return. Small gains do add up.

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