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I can share an example of how I used the vertical spread strategy in options trading to generate profits. Let's say, at a certain point, I had a bullish view on a particular stock, but I also wanted to trade with controlled risk.
I chose the vertical spread strategy, specifically the Credit Vertical Spread. I simultaneously sold a higher strike price call option (referred to as the "far" option) and bought a lower strike price call option (referred to as the "near" option). By doing this, I collected the premium from selling the option, resulting in an initial cash inflow (credit).
I chose the vertical spread strategy, specifically the Credit Vertical Spread. I simultaneously sold a higher strike price call option (referred to as the "far" option) and bought a lower strike price call option (referred to as the "near" option). By doing this, I collected the premium from selling the option, resulting in an initial cash inflow (credit).
The goal of this strategy was to retain the initial cash inflow as profit if the price of the underlying asset rose but didn't reach the strike price of the far option. However, if the price of the underlying asset exceeded the strike price of the far option, I might have to pay the difference as a loss.![]()
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