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SPREAD STRATEGIES

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SPREAD STRATEGIES
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Abhijeet S
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SPREAD STRATEGIES - September 2nd, 2010

BULLISH VERTICAL SPREAD:
  • A Bullish Vertical Spread is a strategy which is used by investors who feel that the market price of a commodity will appreciate but wish to limit the downside potential related with an incorrect prediction.

  • It requires the simultaneous purchase and sale of options with different strike prices, but of the same class and expiration date.


BUTTERFLY SPREAD:
  • A Butterfly Spread is an option strategy which is a combination of bull and bear spread.

  • It uses three strike prices.

  • The lower two strike prices are used in the bull spread, and the higher strike price in the bear spread.

  • Both puts and calls can be used.


CONDOR SPREAD:
  • Condor Spread is similar to a butterfly spread, a condor is an options strategy that also has a bear and a bull spread, except that the strike prices on the short call and short put are different as in butterfly spread.

  • This option strategy aims to earn limited profits, regardless of market movements, with a small amount of risk.

CALENDAR SPREAD:
  • Calendar Spread is an options or futures spread established by simultaneously entering a long and short position on the same underlying asset but with different delivery months.
  • It is also referred to interdelivery, intramarket, time or horizontal spread.

  • An example of a calendar spread would be going long on a crude oil futures contract with delivery next month and going short on a crude oil futures contract whose delivery is in six months
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