Most options investors screw it up. They may just buy a call option and hope a stock will rally further, leading to huge profits. Or they buy a put and hope a company immediately starts filing for Chapter 11.
The fact of the matter is, stocks fluctuate. They may eventually go way up or way down, but it won’t be in a straight line. And knowing how to profit from more modest moves in a stock—the more typical daily moves you’re going to see over most of your investment life—is crucial for any options investor.
That’s where options spreads come in. This strategy uses two options in a trade instead of one. The goal is simple. To reduce your risk by reducing the cost of your trade. The cost of that? You cap your upside. But for stocks making a small move, it’s one well worth taking.
For more details on how this strategy works, check out this video I just recorded.