In past entries, I've alluded to the concept of naked options, or options sold by themselves. Option connoisseurs avoid selling novice options because of the risk. Although selling options has a better chance of being a winner than buying options, it has a capped maximum and an unlimited loss. Options traders are not to keen in assuming this risk and turn to various strategies in an effort to align their appeal for risk with their assumptions of the market's direction (bullish vs. bearish).
In the next few posts, we will be discussing vertical spreads. When creating a vertical spread, an option is bought or sold at prices above and below the strike price. We will be exploring:
While the terms 'debit', 'credit', 'long', 'short' etc might sound confusion, an easy way to remember is:
Eighteen-year old trader, future connoisseur of options.
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