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Market Measures

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Width of Vertical Spreads

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

One advantage of vertical spreads is they are smaller trades than naked positions and the narrower the spread the lower the buying power requirement.

New traders may be misled by the lower buying power of tight vertical spreads relating to lower risk, but when comparing these differently sized trades, it’s important to normalize by this buying power amount. One way to compare these trades is to look at the return on capital.

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