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"
"
About Mark S. Longo
Mark S. Longo is the founder of The Options Insider Inc. - a firm dedicated to providing free options information, education, news and analysis for options users. Whether it's on TheOptionsInsider.com, a leading online options destination; through Options Insider Radio, the world's only radio network for options users; or through a growing number of newsletters and live events, Mr. Longo continues to provide new ways to spread the word about options.Mr. Longo's analysis of the options market has appeared in a wide variety of domestic and international publications, including The Wall Street Journal, Financial Times, Reuters, Futures Magazine, and more. As one of the few industry commentators with practical options experience, he has developed a substantial following among industry veterans and newcomers looking for insight into this complex market.Mr. Longo began his career as an options trader on the floor of the Chicago Board Options Exchange.
View Mark S. Longo's post archive >
