Spread Option
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There are a number of option spread strategies non directional trading investors can use to generate consistent income from the markets. These include: option credit spread, iron condor spread, butterfly option, diagonal spread, calendar spread, etc.
One of the more simple – or easier to understand spread option strategies is the credit spread – or the ‘vertical spreads’.
This trade can be used to generate passive income from the market while the one putting the bull put spread or bear call spread doesn’t have to be exactly ‘right’ about which way the underlying is headed.
With the option credit spread trader – say he puts on a bull put spread – which is the sale of a put option below where the stock is immediately trading at – and then the purchase of a put even further below.
With this trade, it can be profitable if the underlying asset goes up, goes nowhere, or even goes down a little. The only way this trade could realize losses is if the asset drops significantly – and even in that situation there are measures that can be taken to ‘adjust’ the position.
