Chapter 06 · Section 6.1
Spread Requirements
What is necessary to create a spread?
a) to buy a put and to buy a call.
b) the sale and the purchase of an option of the same type with different exercise prices and/or expiration dates.
c) to sell a call and to buy a put.
A spread is an options position with limited profit and limited loss potential. Depending on the option type, profits can be made from increasing or decreasing stock prices.
For building a spread it is necessary to combine options which partly compensate each other. Contradictory characteristics are shown by a call and a put on the one hand but also by sale and puchase of an option on the other hand.
The combination buy a call and buy a put creates an unlimited profit potential towards both sides. In contrast to this, the combination of the sale and the purchase of an option of the same type offers a limited profit