Option spread definition

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An option spread is a strategy used in options trading. It involves buying and selling multiple options on the same underlying asset that are almost identical to each other but with a different strike price or expiry.

There are three main types of options spread used by traders:

  • Vertical spreads have identical expiry dates but different strike prices
  • Horizontal spreads have identical strike prices but different expiry dates
  • Diagonal spreads have different expiry dates and strike prices

Traditional options spread strategies involve buying and selling equal numbers of options contracts. When this isn’t the case, it is called a ratio spread or a backspread.

Different option spread strategies have different uses for an options trader. 

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