Understanding the Benefits of Options and Spreads in Trading

The Long View, institutional investor, posted on X. Options trading offers significant advantages by reducing delta and increasing gamma, which helps traders focus on specific profit and loss areas within a distribution. However, spreads are also considered a valuable tool both psychologically and practically. They enable traders to counteract adverse market movements by buying back the further out-of-the-money (OTM) strike. Additionally, spreads reduce sensitivity to volatility and theta decay, providing a buffer while waiting for the market to move in the desired direction. It is crucial to ensure that the second leg of the spread is positioned near a strike price where the trader intends to buy.