Back-Spread Options Trading Key Issues

Back spreads are normally used instead of simply buying a naked call or put option. The main difference between buying a back spread or a naked option is in what happens if the underlying stock goes down. In a back spread you could lose less money if the stock falls and if it falls enough, you could even make a profit.

The most important matter to remember with back spread is that you should not hold the positions until the expiration date. Exiting the options trade before expiration ensures that you do not take the maximum potential loss.