How many types of options spread ?
Option spreads are simultaneous buy and sell of options for the same asset. Spreads like this have different strike prices and expiration dates.
There are many types of option spreads.
- Vertical spreads - An option spread that uses Options with the same expiry and strike prices is known as a vertical spread.
- Horizontal Spreads- Also known as Calendar spreads, they are made using the same underlying, strike price, but different expiration dates.
- Diagonal Spreads- These can be created with options that have the same underlying, but different strike prices or expiration dates.
- Call Spreads- Spreads created with only Call Options are called Call spreads.
- Put Spreads- Spreads created with only Put options are known as Put spreads.
- Bull Spreads - A spread that allows you to profit from an increase of the price of the underlying.
- Bear spreads -An option spread that is created to profit from a decline in the price.
- Credit spreads - Spreads that result in a higher premium than what was paid, i.e. Credit spreads are credit accounts that result in higher premium credit than is actually paid.
- Debit spreads - A spread that results in a higher premium than what was received, i.e. A debit spread is a spread that results in a higher premium than received, i.e.
Options spreads can either be entered with a net debit or credit. When entering the spread, a net credit will be given if the premiums for the options sold exceed the premiums for the options bought. If the reverse is true, a debit will be taken. Spreads entered on a debit are called debit spreads, while credit spreads are known for those entered on credit.