The Picture Of Profit - Basic Spreads
Getting The Picture
Profit and loss diagrams are key components of any options trader’s toolbox. These basic diagrams illustrate the performance of an options position in a simple and straightforward manner.
Despite all of the advanced education methods at our disposal these days, P&L graphs are still the best way to convey options concepts in ways that are easy to understand.
Bull Call Spread
The traditional call spread, also known as a vertical spread, is one of the most basic positions in the options world. However, in spite of its simplicity, the call spread continues to confuse novice options traders. One way to dispel this confusion is to display the performance of a bull call spread in a profit & loss graph:
TERMINOLOGY NOTE: B.E.P. = Break Even Point
Bear Put Spread
The bear put spread is another simple position that routinely mystifies beginning traders:
Images courtesy of The Options Industry Council
To Be Continued In "The Picture Of Profit - Basic Options Positions"
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