Spreads: Overview and Classification
Chapters in this video
- 0:00 Why spreads are the financial seat belt
- 0:55 Same class, simultaneous: the spread definition
- 2:21 Vertical, horizontal, and diagonal naming
- 3:40 Debit vs credit and the higher premium rule
- 5:00 Bullish vs bearish call and put spreads
- 5:50 Three exam traps to memorize
- 7:10 Rapid-fire recap and the October 50/60 puzzle
What this video covers
- What qualifies as a spread: simultaneous purchase and sale of two options of the same class on the same underlying
- Why spreads cap both maximum gain and maximum loss, and how that compares to naked option risk
- The three naming conventions: price (vertical) spreads, time (horizontal/calendar) spreads, and diagonal spreads, plus why vertical and price mean the same thing
- How to tell a debit spread from a credit spread by tracking net cash outflow versus net cash inflow
- The higher-premium rule, and why the more expensive leg dictates both debit/credit and bullish/bearish
- How to identify bullish versus bearish call spreads and put spreads by which strike was bought
- The exam traps the Series 7 plants around vocabulary swaps and premium direction
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. When you're ready to drill the topic, the full Series 7 course adds adaptive practice questions and spaced-repetition flashcards.