Explore Your Options  |  FEB 2003

Explore Your Options by Tom Gentile

Explore Your Options by Tom Gentile OPTION SPREADS I was told that to lower my risk in buying calls or puts, I could spread them. What does this mean? To spread an option means to buy a call or put and sell one simultaneously to hedge it, either in the same month (as with vertical spreads) or different months (diagonal spreads). As an option purchaser, a trader has the right to buy or sell the underlying instrument at a specific price in the future, depending on whether it’s a call or a put. Should the buyer decide to exercise the option before expiration, the seller is obliged to deliver, or take delivery of, the underlying. When you both purchase an option and sell one, you accomplish several things:...

by Tom Gentile