Spreads can be a great benefit to a trader. They can help you to make money in many different market situations.
So, what are spreads? A spread is formed when you combine two or more options on a given stock at the same time. These are often less dangerous then basic options and can produce greater returns then stocks, while being arguable safer.
For instance a bull put spread is composed of 2 puts. You buy a put with a low strike price and sell a put with a higher strike price. You would get to keep the difference as long as the stock stays above the strike price of the put that you sold.
That makes your potential for profit relatively high because you do not need the stock to go up to make money. You only need the stock not to go down far enough for you to lose money.
This is not the only spread in fact there are tons of different types. The best thing about them is that they make it possible to make money in many different situations. The iron condor which is considered to be a sideways market strategy will allow you to make money as long as the stock you use it on stays within it's trading range.
There are even spreads like the straddle that can help you make money if the stock makes a big move, regardless of direction. This is done by buying both a call and a put on the same stock. If it goes up far enough the call will make enough money to more then offset the loss in the put. If it goes down far enough the gain in the put will more then offset the loss in the stock price.
Spread traders have the advantage of making high probability trades and can easily adapt to many different market climates.
To learn more about spreads visit http://www.stocks-simplified.com/spreads.html
To learn more about trading in the stock market visit http://www.stocks-simplified.com
Article Source: http://EzineArticles.com/?expert=Shaun_Rosenberg
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