V. 19:5 (40-46): Option Credit Spreads by Lee Lowell

Limited Risk With Limited Profit Option Credit Spreads

Selling options is usually a good idea. Here’s a tactic to do it. by Lee Lowell

Option trading all comes down to probability of profit. Statistically, option sellers always have a better chance of profiting. It’s true that when you sell options your profit is limited, but your chances of walking away with that profit are high. The reverse is true for option buyers. Their potential profit is limitless, but the odds of achieving that profit are very small, especially with out-of-themoneyÝ options.

Why not put the odds of success on your side and learn how to become a smart option seller? Naked (uncovered) option selling entails unlimited risk and limited profit, but there is a strategy of option selling that has limited risk as well as limited profit. It’s called a credit spread.