What is an option spread?

Option spread meaning

An option spread is a basic building block of option trading strategies. An option spread is created by the simultaneous purchase and sale of options of the same underlying and expiration. The strike prices of the options are different. A spread that is constructed with call options is called a Call spread, and a spread that is constructed with put options is called a Put spread.

You can use these spreads to reduce your investment costs, as you pay a premium for buying the option but receive a premium for selling the option. Your net premium is therefore lower. Spreads are also useful for minimizing the risk of a trade and limiting losses.

Option spread example

Some examples of options spread are Bull Call Spread, Bull Put spread, Bear Call Spread, Bear Put Spread, etc.

You can read more about Option spread types here.