Options spreads are popular strategies among traders looking to manage risk and optimize profit potential using multiple option positions. A spread typically involves buying and selling options of the same underlying asset with differences in strike price, expiration date, or both.
These involve the same strike price but different expiration dates.
Example:
If stock ABC is trading at ₹50, a trader could:
If the stock stays near ₹50, the sold option (expiring sooner) loses value faster, potentially resulting in a net gain.
These involve the same expiration date but different strike prices.
Example:
For ABC at ₹50, a trader might:
Both options expire in one month. This limits both risk and reward but provides defined potential outcomes.
These combine features of both horizontal and vertical spreads—different strike prices and expiration dates.
Example:
A trader could:
This strategy leverages both time decay and price movement.
| Scenario | Outcome |
|---|---|
| You hold a calendar spread on expiry day | No margin benefit as per SEBI rules; additional margin may be required |
| Market moves beyond both strike prices in a vertical spread | You either hit maximum profit or incur maximum loss; the risk is defined |
| Underlying price stays stagnant in a diagonal spread | Time decay works in your favor on the short leg, potentially resulting in profit |
Last updated: 27 Jun 2025