Option Spreads Give You More Variety

Option Spreads can be very helpful for anyone who want to enter the world of short term trading but is having problems finding stocks that will do exactly what they are expecting. Spreads use creative ways to make it easier to make a monthly income from stocks.

The best thing about spreads is that they give you many more ways to profit then options.  With options it is simple, you can profit if the stock goes up, and you can profit if the stock goes down, provided you are in the right position.

Spreads on the other hand allow you to trade more directions, you can enter positions that allow you to profit as the stock goes up, down sideways, or is about to make a big move in one either direction.

Ok so what are spreads and how do they work?  Well option spreads occur when you combine options.  So if you buy 1 option contract and sell a different contract on the same stock that is a spread.  By being creative we can combine these contracts to give us a favorable trading approach.

An example of a spread is a straddle, where you buy both a call and a put on the same stock.  If the stock moves far enough in either direction you would profit, but it has to be a good size move.

Another example would be the bull put spread which would mean you sell an out of the money put and buy a further out of the money put on the same stock.  This would allow you to profit as long as the stock stayed above the strike price you sold.  And because you bought a lower out of the money put you would also be limiting your risk if the stock fell.

Spreads can be a great benefit because they open up new possibilities to making money, but like anything else in the market they should be traded only if you have a plan and can deal with the risk.

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