When you use option spreads, especially as a novice trader, it is important to establish a trading policy for yourself. You must know up-front exactly what type of spread you are doing, what the
goal of the spread is, and you must know learn how to execute the trade for that spread. In this article, we will focus on the business set-up of a spread and why it is vital to both your
potential profit and risk. Follow the link for more information about Bubba's Instant Cash Flow.
One of the advantages of being able to work with a professional futures broker in option spreads is "legging" right into a spread. What this means is that your broker is able to place one "leg" (or side) of the spread in at the same time, in this way you are able to have the best prices possible for each leg of the spread. Almost always there is a possibility of the market relocating against you as you are legging in, which is why it might be imperative you enable a professional to do this.
Many investors will also be curious to learn which is the best order type to use when setting up option spreads. A general guideline is to always use a limit order when entering option spreads. A limit order ensures you'll your desired price (or better) or you is not going to get loaded in any way. This is essential considering a spread has a fixed amount of risk and limited profit future. If you are unable to have the pricing you want, you have the ability to simply opt from the business.
A significant element of finding strike prices for option spreads is uncovering option strikes that have enough liquidity. Liquidity is measured with both open curiosity and volume. If a market is more liquid, you should have better pricing to pick from when entering your business. This pricing directly effects the amount of risk you would like to take on together with the revenue potential your are hoping to achieve.
THERE IS A SIGNIFICANT RISK OF LOSS ASSOCIATED WITH FUTURES TRADING AND IS NOT SUITABLE FOR ALL OF THE INVESTORS.
Adam Leeney is a series several licensed broker with Insignia Futures and Options. His aim is to educate experienced, inexperienced, and aspiring traders on the risks and rewards of investing in futures, as well as opportunities that may exist in the markets. For more info go to Option Spread Trading.
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