Every Day Options: What Are Options Spreads Strategies?

Options spreads are common strategies used to minimize risk or bet on various market outcomes using two or more options.

Opyn v2 lays the foundation for more capitally efficient #DeFi options starting with spreads

Call Credit Spread:

A call credit spread, also known as a bear call spread, is a type of options strategy used when an options trader expects a decline in the price of the underlying asset.

Call Credit Spread:

The call credit spread is achieved by purchasing call options at a specific strike price while also selling the same number of calls with the same expiration date, but at a lower strike price.

Call Credit Spread:

The maximum profit to be gained using a call credit spread is equal to the credit received when initiating the trade. A call credit spread is considered a limited-risk and limited-reward strategy. Limits of profits & losses are determined by the strike prices

Put Credit Spread:

A put credit spread, also known as a bull put spread, is an options strategy that a trader uses when they expect a moderate rise in the price of the underlying asset.

Put Credit Spread:

The put credit spread strategy employs two put options to form a range, consisting of a high strike price and a low strike price. The trader receives a net credit from the difference between the two premiums from the options.

Put Credit Spread:

The maximum loss in a put credit spread is equal to the difference between the strike prices and the net credit received. The maximum profit, which is the net credit, only occurs if the asset’s price closes above the higher strike price at expiry.

Call Debit Spread:

A call debit spread, also known as a bull call spread, is an option strategy involving the simultaneous buying and selling of options of the same class with different prices, requiring a net outflow of cash. The result is a net debit to the trading account.

Call Debit Spread:

The call debit spread reduces the cost of the call option, but it caps the gains in the asset’s price, creating a limited range where the trade can earn a profit. Traders often use a bull call spread if they believe an asset will moderately rise in value.

Call Debit Spread:

The trade involves 2 call options, resulting in a net debit:

• Buying a call option (long call) for a strike price above the current market
• Simultaneously selling a call option (short call) at a higher strike price that has the exact same expiration date

Call Debit Spread:

Potential profit for a call debit spread is limited to the difference between the strike prices minus the net cost of the spread. Maximum profit is realized if the stock price is at or above the strike price of the short call at expiration.

Put Debit Spread:

A put debit spread is an options strategy where a trader expects a moderate decline in the price of an asset. It is achieved by purchasing put options while also selling the same number of puts on the same asset with the same expiration date at a lower strike.

Put Debit Spread:

The sum of all options sold (lower strike price) is lower than the sum of all options purchased (higher strike price), therefore the trader must put up money to begin a put debit spread.

Put Debit Spread:

A put debit spread nets a profit when the price of the underlying security declines. The maximum profit in a put debit spread is equal to the difference between the two strike prices, minus the net cost of the options.

Every Day Options is a series by Opyn that aims to educate the #DeFi community about options and make options trading more inclusive.

For more detailed information about options trading, visit the Opyn blog @ http://medium.com/opyn 

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