Why to choose vertical spreads in options trading

Vertical spreads are a popular options trading strategy because they offer limited risk and limited potential profit. When using a vertical spread, we buy one option at a certain strike price and simultaneously sell another option at a different strike price, but with the same expiration date. The difference between the strike prices is known as the "spread."

There are two types of vertical spreads: bull call spreads and bear put spreads. A bull call spread involves buying a call option at a lower strike price and selling a call option at a higher strike price. This strategy is used when the we believe the market will rise, but want to limit their potential loss if the market moves against them. The maximum profit for this strategy is limited to the difference between the strike prices minus the cost of the spread.

A bear put spread involves buying a put option at a higher strike price and selling a put option at a lower strike price. This strategy is used when the we believe the market will fall, but want to limit their potential loss if the market moves against them. The maximum profit for this strategy is also limited to the difference between the strike prices minus the cost of the spread.

One advantage of using vertical spreads is that they provide a degree of protection against sudden and unexpected market movements. They can be particularly effective in volatile markets where it can be difficult to predict the direction of the market. However, it is important to carefully consider the risks involved and to develop a solid understanding of options trading before utilizing this or any other strategy.