📉 Options & Cboe · Lesson 7 of 7 · 7 min
Spreads — Boxing In Your Risk
🥊 A spread is when you make two opposite option bets at once to box in exactly how much you can lose. It's like going to a casino but only bringing the cash you're willing to set on fire — responsible, slightly less thrilling, and the only way some traders sleep at night.
💡 Key idea
A spread = buy one option + sell another. It caps both your maximum loss AND your maximum gain — defined risk.
🧠 Why it matters
A SPREAD means buying one option and selling another at the same time, usually at different strike prices. Selling one option helps pay for the one you buy — which lowers your cost AND caps your maximum loss to a known number. The trade-off: it also caps your maximum gain. Versus buying a single option, a spread costs less (so your max loss is smaller). Versus SELLING a single option naked, it turns unlimited risk into a known worst case. Most disciplined options traders live in spreads, not naked short options.
🌍 In the real world
💡 Instead of buying one call and praying, you buy a call and sell a higher-strike call against it. Your cost drops, your max loss is locked in, and your max profit is capped at the gap between the strikes minus what you paid for the spread. You traded unlimited upside for the ability to actually sleep.
📌 Takeaways
- A spread combines a bought + a sold option
- It caps maximum loss to a known amount
- The trade-off: it also caps your maximum gain
✅ Test yourself
What does an option spread do?
- Removes all risk
- Caps both your max loss and max gain
- Guarantees profit
- Doubles leverage
Answer: B · Caps both your max loss and max gain
Buying one option and selling another boxes in both the worst case and the best case.
The main trade-off of a spread is...
- Higher fees only
- Capping your upside in exchange for capping your downside
- More risk
- No downside
Answer: B · Capping your upside in exchange for capping your downside
You give up unlimited upside to gain a known, limited maximum loss.
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