Hidden Risks Of Debit Spread by Alex Mendoza
ARTICLE SYNOPSIS ...Hidden Risks Of Debit Spread by Alex Mendoza
Understand all your risks when you trade.
Strategies that seem harmless could end up
Debit spreads are a favorite strategy
among experienced options
traders who understand
the need to hedge risk, however
strong their directional
convictions. For example, if
the price of the underlying instrument
rises, instead of profiting from a simple
call, you can hedge the risk of the total cost of the
option by selling another call at a higher strike
price. This would lower the cost basis of your
trade. The tradeoff for the lower risk is that pro...