In this video, the Hughes Optioneering Team will explore the advantages of directional trades versus spread trades.
When you purchase a stock, the stock must go up in price to profit. A stock spread trade, on the other hand, can profit if the stock trades up, down or remains flat.
When you buy a call option, the underlying stock must increase in price above strike price of the option at expiration, or you will incur a 100% loss of the option premium.
You are always faced with the possibility of a 100% loss when trading options. When you buy a call option, many times the underlying stock will not make the expected move prior to option expiration which can result in a total loss of the option premium.
Option spread trades, however, can profit if the underlying stock is up, down or flat at option expiration. Most of our option debit spreads can produce a 30 to 40% return if the underlying stock is flat at option expiration. This provides a much better risk/reward ratio and gives option traders a much better chance at success. Learn how stock and option spread trading can produce steady profits during the current volatile, non-trending type markets.