The Complete Book of Option Spreads and Combinations: Strategies for Income Generation, Directional Moves, and Risk Reduction, + Website

PREFACE

The goal of option trading is to make money. The vital element of making money over the long run is to define risk when you can and reduce the cost of your trade when you should. An option spread (essentially buying one option and selling a similar option) or an option combination (usually using two options in tandem such as buying both a put and a call or using an option in tandem with something else such as ownership of the underlying stock) is usually the best way to define risk and/or reduce the cost of your trade. Not every option spread or combination limits your risk but most do and they do it sensibly, without paying a huge penalty that destroys the mathematical advantage your option strategy might generate. In fact, certain option spreads generate even more mathematical advantage than outright option positions can. The purpose of this book is to help you understand these strategies and apply them intelligently because, again, the goal is to make money. We can and should enjoy both learning about options and trading them effectively, but both are a lot more fun when we’re making money.

No trader is right every time, but you should make money more often than you lose money and your profitable trades should make more than your losing trades lose. The easiest way to do all these things is to use option spreads and combinations and to do so in a disciplined manner. That discipline includes taking your loss when your option spread trade isn’t working. You will probably ...