Location: Sussex, UK
Just been re-reading the description on Vertical Spreads on TradeMonster.com.. The loss and profit is known before you enter the trade so you know what risk you're taking beforehand. The ones I'm interested in are the credit spreads where you receive a credit into the account, they are more likely to expire worthless. The spread can be bullish or bearish, so the strategy is for a neutral to slightly directional move. If the underlying goes in the wrong direction, the maximum amount lost is the amount credited into the account, ie, 'the spread'.
However, if the underlying goes against you, you loose money Whereas if you sold a naked put, you would be assigned if the underlying fell below the strike price, which is fine if you wanted to buy the stock anyway, so you still have an asset but at a small discount...
The good thing about Vertical Spreads is that you can trade the expensive stocks like Apple, Google etc with a small account because you only need enough margin to cover the spread, not the whole cost of buying stock. I didn't know this before, wish I did because I would have avoided the smaller stocks when I did have some money to trade with and just concentrated on the bigger liquid stocks! Live and learn..!
I haven't got Option Trader as yet, need to make some money first! Not sure if this laptop would cope with it either, Vista on this thing seems to crash at the slightest youtube video so I'm sure it would panic at the sight of anything more complicated! I'm waiting for the new MacBook Pro to come out later in the year then run OT & VT on Windows 7 on Parallels..
[Edited by Dan on 3/4/2012 1:17 PM]