What Is a “Spread” in Options Trading and How Does It Affect Margin?
A spread in options trading is the simultaneous buying and selling of two or more options of the same class on the same underlying asset, but with different strike prices or expiration dates. Spreads are considered risk-reducing strategies, as the short leg is partially covered by the long leg.
This defined risk profile significantly lowers the margin requirement compared to naked option selling.
Glossar
Defined Risk
Principle ⎊ Defined Risk refers to a financial position where the absolute maximum capital loss is mathematically predetermined and cannot exceed a specific, known value.
Spread in Options Trading
Strategy ⎊ An options spread strategy involves combining long and short options positions to create a specific risk-reward profile.
Option Margin
Collateral ⎊ Option margin within cryptocurrency derivatives represents the equity held by a trader or investor as a good faith deposit to cover potential losses arising from an options contract.
Strike Prices
Definition ⎊ Strike Prices represent the fixed price at which the holder of an option contract has the right, but not the obligation, to buy or sell the underlying cryptocurrency asset upon exercise.
Options Trading
Stewardship ⎊ Involves utilizing these contracts to manage exposure to assets whose underlying technology or governance may evolve, ensuring capital is not locked into potentially obsolete systems.