Vertical Credit Spread Option Trading System is the option trading strategy adopted by several traders. The main purpose of this strategy of option trading lies in the fact that the traders intend to obtain maximum benefits from the prevailing price of stock in the market. The article below highlights certain facts about this trading strategy.
The vertical credit spread option trading system may be referred to as a trading strategy pertaining to options. This option trading strategy comprises the sale of high priced as well as low priced options, which have similar expiration date.
Understanding the option trading strategy:
This implies that when an investor is making entry into the Vertical Credit Spread, the investor is either buying a call and selling a call or buying a put and selling a put. In the first instance (when the investor is buying a call and selling a call), it is referred to as Bear Credit Spread. In the second instance (when the investor is buying a put or selling a put), it is referred to as Bull Credit Spread. In both the cases, profit is yielded only when the stock remains static or moves in a direction as anticipated. The Vertical Credit Spread Option trading strategy is often referred to as �limited risk/limited return� technique adopted by traders. These traders avail of the benefit of resistance points or strong support pertaining to option premiums, which are overpriced and the underlying stocks.
Salient features of vertical credit spread option trading system:
The traders opt for option premiums, which have limited risk. Traders usually earn profits by the time decay of these option premiums.
This type of option trading system focuses on indexes as well as stocks, which do not have any possibility of deviating in a new direction.
As far as the strategic approach is regarded the strategy involved is earning maximum profit from the current price of the stocks.
More Information On Options Trading
Last Updated on : 23rd July 2013