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| Spread Basics |
Q: What is a credit spread?
A: It is an option trading strategy. Spreads involve simultaneously (A) selling an option contract while (B) buying another option contract. Both contracts (A and B) represent the same stock, the same time frame, but different prices for the underlying stock or index.
Q: How does PowerOptionsApplied use spreads?
A: The two spread strategies we use are called credit spreads. The cash you receive for selling one contract is going to be more than the cash you pay to buy the other contract. When you initiate our recommended spread trades, you realize an instant cash income. The instant cash is called a net credit.
Q: What are the risks associated with spread trading?
A: While a credit spread trade is open, there is some probability that the underlying stock or index will head in an undesirable direction. If the underlying stock or index heads in the wrong direction you can lose your entire investment. However, we provide exit points to limit any potential losses. Also, the combination of two spreads means that if either is in danger of failing, the other is almost guaranteed to be profitable.
Q: How much money can I make?
A: Our research-supported trades aim to help you realize the entire profit. Total profits are proportional to the size of the investment. Please see our Track Record for past performance details. Remember: Past performance is not an indicator of future performance.
Q: How much money do I need to trade a credit spread?
A: Depending on the spread strategy, you need a minimum of $2,500 - $5,000 cash or assets available in your brokerage trading account.
Q: How do I win or lose with a credit spread position?
A: Most credit spreads we trade are already in a situation where they will be fully profitable at expiration, given the underlying stock or index does not dramatically change in price. Since our exclusive trades feature prices distant from the current stock or index price, the underlying stock or index can move against the original trade posture to some degree while remaining fully profitable at expiration.
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Bull Call Spreads - Credit Spreads - Spread Trading
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