In today's Traders Exclusive update, Randall Liss reviews basic the vertical spread, an important element of any option trader's toolkit. Vertical spreads offer a way to manage risk that buying outright does not. For example, if you buy an option outright, you better be right quickly otherwise time decay quickly erodes any profit potential. And of course selling options outright is problematic because your risk is unlimited, while your profit is limited. Spreads give you the best of both worlds. The vertical spread is made up of either all calls or all puts, and allows you to set up a trade with a defined risk/reward ratio.
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