There are two main uses for stock options: hedging and speculation.
Speculation is done using stock option spreads. A stock option spread is establish when stock options are bought and sold simultaneously with the same underlying stock (equity). Option spreads are generally very risky investments, and are certainly not recommended for beginning investors. This website can show you the basic strategies used for stock option spreads, but we suggest doing a great deal of research before you begin to trade your own option spreads. We also suggest visiting TerrysTips.com for a more thorough discussion of stock option spreads.
There are three general classes of option spreads:
Bullish - Betting the stock goes up.
Bearish - Betting the stock goes down.
Neutral - Betting on stock volatility (or lack thereof).
|BULLISH STRATEGIES||BEARISH STRATEGIES||NEUTRAL STRATEGIES|
|Long Calls||Naked Calls||Calendar Spread|
|Naked Puts||Long Puts||Straddle Spread|
|Bull Call Spread||Bear Call Spread||Strangle Spread|
|Bull Put Spread||Bear Put Spread||Butterfly Spread|