Spreads
Defined risk option structures that help control downside while still generating income or expressing a view.
A spread is two options, one position
A spread combines a sold option and a bought option. The bought option limits risk. The trade has defined risk and defined reward.
Why spreads are useful
Spreads let you trade with smaller capital requirements. They also help you survive mistakes because the risk is capped.
What changes for management
Because risk is capped, management is different. You are no longer deciding between unlimited downside and hope. You are deciding between exiting, rolling, or accepting a defined loss.
Common mistakes
Most spread mistakes come from chasing premium or trading illiquid strikes. Tight spreads can also create bad risk reward, even if the max loss looks small.
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