Vertical Spread – Monthly Paychecks From Wall Street

A number of different techniques and strategies are available to option investors to help assist them in achieving consistent and reliable monthly income from the option market.

Several examples include: the calendar spread, the iron condor spread, the butterfly spread, the double diagonal, and the Credit Spread – also know and referred to as the Vertical Spread.

In actuality, the vertical spread can be discovered inside found many of the previously talked about strategies. It is a core foundational trade to each of their makeup. Take for instance the iron condor. This trade is constructed from two separate vertical spreads – a put credit spread and a call credit spread – each positioned above and below where the underlying stock is currently trading at.

Also take a look at the butterfly. This strategy is comprised of verticals as well. One in the upper half of the position and one in the lower half. Also the iron butterfly is made up of two credit – or vertical spreads. A put vertical and a call vertical – both sold at a credit.

The vertical spread trade can be built from either call options or also put options.

Following is an illustration of a bull put vertical spread…

Sell 7 XYZ 35 Call Options Buy 7 XYZ 40 Call Options

The vertical spread in the example above is a bearish position. Our hypothetical trader who placed this trade believed that RIMM would be moving lower – or staying in it’s general vicinity on the chart.

Even though the position in the example uses call options, it is a bearish position since it is constructed in such a way to be profitable if the stock being used (RIMM) heads down, or stays in the general area of where it is currently trading at.

As long as the outlook on this trade is correct and RIMM stays where it is at or heads downwards, this trade will ‘win’ and the initial credit received when the trade was first placed will become the profit.

Want to find out more about how to trade the Vertical Spread for monthly income, then visit Ted Nino’s site on how to trade this strategy as well as the Credit Spread for monthly cashflow.

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