The vertical spread strategy combines the purchase and sale of different options contracts

By simultaneously buying and selling options contracts with different strike prices, the vertical spread strategy helps limit losses and control risk. The purchased options provide potential for protection or profit, while the sold options generate income that offsets the cost of the purchased contracts.

So, how does it demonstrate its advantages compared to other strategies?

Limited loss: In contrast to strategies that involve only buying options, the vertical spread can restrict potential losses. If the price of the underlying asset moves unfavorably, the value of the purchased options may decrease, but the premium received from the sold options partially offsets this loss.

Risk control: The vertical spread helps control risk by establishing a price difference between strike prices, reducing the impact of market volatility on the trade.

Limited profit potential: The vertical spread has a limited profit potential as the income generated from selling options limits the potential gains. This may result in a lower profit ceiling compared to strategies that involve solely buying options.

The decision to use the vertical spread strategy also depends on individual investment objectives, market conditions, and risk tolerance. Other options trading strategies, such as buying or selling options outright, butterfly spreads, or time decay strategies, have their own advantages and disadvantages. Traders need to consider these factors and make trading decisions based on their judgment and chosen strategies.