What is spread trading, what are the advantages and draw backs. where can i get more details about it.?

Question

I am not telling the spread between bid and offer here.

Answer 1

A spread is combination of two or more positions in the same underlying security with at least one bullish (positive delta) and one bearish (negative delta) position.

A simple example would be a bullish call vertical spread. Assume a stock is trading at $50. I might buy a call option with a strike price of $45 for $6 per share and sell a call option with a strike price of $2 per share. That would make my net cost per share $4. If, at the time the options expire, the stock is over $50 per share I could exercise my long call options and buy the stock for $45 per share and be assigned on the short call options to sell the same stock for $50 per share, giving me a profit of $5 per share on the stock. Since I paid $4 per share for the options, my net profit would be $1 per share, or 25% of the amount I invested.

The primary advantage, imho, is you have a much control over the amount of risk and potential profit with a spread.

The pimary disadvantage, imho, is that there are multiple risk factors associated with spreads and if you do not understand them all it is easy to lose money.

You can get some basic information about options and spreads at the CBOE site

http://www.cboe.com/LearnCenter/default.aspx

but to get a good understanding of options and spreads I strongly suggest you read one or more good books on options. A couple of good choices are

Options as a Strategic Investment by Lawrence McMillan

Option Volatility & Pricing by Sheldon Natenberg

Answer 2

The secret word of trading success is "organized". You can't be successful without a strategy, a plan and some kind of technological support. I use a software called "autobinary signals" that is helping me a lot. There are plenty of them on the market. I recommend this one because it's very easy to use (you don't have to be an expert or have special skills to make money with it).

Check it out here. It's worth it: http://tradingsignal.toptips.org

Answer 3

A spread is defined as the sale of one or more futures contracts and the purchase of one or more offsetting futures contracts. A spread tracks the difference between the price of whatever it is you are long and whatever it is you are short. Therefore the risk changes from that of price fluctuation to that of the difference between the two sides of the spread.

The spreader is a trader who positions himself between the speculator and the hedger. Rather than take the risk of excessive price fluctuation, he assumes the risk in the difference between two different trading months of the same futures, the difference between two related futures contracts in different markets, between an equity and an index, or between two equities.

Basically there are 3 different kinds of spreads:
Intramarket Spreads

Officially, Intramarket spreads are created only as calendar spreads. You arelong and short futures in the same market, but in different months. An example of an Intramarket spread is that you are Long July Corn and simultaneously Short December Corn.

Intermarket Spreads

An Intermarket spread can be accomplished by going long futures in one market, and short futures of the same month in another market. For example: Short May Wheat and Long May Soybeans.Intermarket spreads can become calendar spreads by using long and short futures in different markets and in different months.

Inter-Exchange Spreads

A less commonly known method of creating spreads is via the use of contracts in similar markets, but on different exchanges. These spreads can be calendar spreads using different months, or they can be spreads in which the same month is used. Although the markets are similar, because the contracts occur on different exchanges they are able to be spread. An example of an Inter-exchange calendar spread would be simultaneously Long July Chicago Board of Trade (CBOT) Wheat, and Short an equal amount of May Kansas City Board of Trade (KCBOT) Wheat. An example of using the same month might be Long December CBOT Wheat and Short December KCBOT Wheat.


You can get more detailed information from the following link

http://spread-trading.com/

Answer 4

spread trading is opposite of bulk trading