Spreads: Overview and Classification
Chapters in this video
- 0:00 What a spread is and why it caps risk and reward
- 1:07 The three spread naming conventions: vertical, time, diagonal
- 3:38 Debit versus credit spread cash-flow rules
- 4:58 Bullish and bearish call spread identification
- 5:48 Bullish and bearish put spread identification
- 6:44 The four-step exam-day checklist
- 7:29 Rapid-fire exam recap
What this video covers
- What defines a true spread: simultaneous purchase and sale of two options of the same class on the same underlying security
- How vertical (price), time (calendar/horizontal), and diagonal spreads differ, and why vertical spreads dominate the exam
- Why "vertical spread" and "price spread" are identical terms, and how the exam tests this vocabulary swap
- How the higher-premium leg dictates whether a spread is a debit (net cash outflow) or credit (net cash inflow)
- Why call spreads use lower-strike equals higher-premium logic, while put spreads use higher-strike equals higher-premium logic
- How to identify bullish versus bearish sentiment by examining which option leg was bought (the long leg)
- The four-step exam-day checklist: confirm same class, name the convention, determine debit or credit, then classify bullish or bearish
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