Ask the Institute

Ask the Institute Archive

DATE: August 26, 2013

QUESTION:

Instead of using a vertical spread to reduce the total principle at risk, can a trader reduce the position size and leave off the cap on profit by selling other options?

ANSWER:
There are multiple ways to reduce risk which can include selling other options. One approach is to analyze different trade scenarios and then consider the tradeoff of each. Every trade scenario has a perceived benefit, but there is also a cost, or tradeoff, to receive that benefit. To learn more about reducing risk by analyzing various trade scenarios, view this segment of "Ask the Institute."

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