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Options 101: Using Options Spreads to Limit Risk
From Guesswork to Probability: Why Every Beginner Should Start With Spreads
Andrew Crowder
September 14, 2025
Using Options Spreads to Limit Risk
Why Spreads Matter
When most new traders discover options, they’re immediately drawn to single calls and puts. It feels simple: you buy a contract, risk is capped, and the payoff could be huge. But there’s a problem. Those long calls and puts are usually stacked against you. Time decay, implied volatility shifts, and probability all work against the option buyer.
Professional traders know better. Instead of swinging for home runs, they use spreads, structured trades that limit risk, cap reward, and tilt the probabilities in their favor.
Spreads don’t eliminate uncertainty. Nothing does. But they allow you to control the size of your worst-case scenario while still giving you a chance to profit from favorable market moves. That’s the kind of discipline most beginners never learn until after a painful lesson.
What Is an Options Spread?
A spread is simply the combination of two options of the same type (both calls or both puts) with the same expiration date but at different strike prices.
Vertical spread: Same expiration, different strikes. (The most common and useful.)
Credit spread: You collect money up front.
Debit spread: You pay money up front.
By pairing options together, you create a defined payoff structure. You know, before you enter the trade, the maximum profit and the maximum loss.
That’s a huge edge over trading naked calls or puts.
Why Beginners Should Start With Spreads
Think of spreads as the training wheels of options trading, not because they’re childish, but because they prevent the worst crashes while you learn balance.
Defined risk: You know your downside before you click “submit.”
Higher probability: Credit spreads, in particular, allow you to sell options with an edge while capping the tail risk.
Consistency over drama: Instead of hoping for a giant payoff, you focus on repeatable, probability-driven income.
The Two Most Practical Spreads
There are dozens of spreads, but two stand out as foundational for income traders:
1. Bull Put Spread
A bull call spread is constructed by selling a put at one strike and buying a put at a lower strike (same expiration).
You receive a net credit.
You profit if the stock stays above your short strike.
Risk is capped at the difference between the strikes minus the credit received.
This is a bullish-to-neutral strategy. You’re essentially saying: “I don’t think this stock is going to collapse.”
2. Bear Call Spread
A bear call spread is constructed by selling a call at one strike and buying a call at a higher strike (same expiration).
You receive a net credit.
You profit if the stock stays below your short strike.
Risk is capped at the difference between the strikes minus the credit received.
This is a bearish-to-neutral strategy. You’re saying: “I don’t think this stock is going to surge past this level.”
An Example in Action
Let’s say XYZ is trading at $500. You think the market will hold steady over the next month, so you decide to use a bull put spread.
Sell the SPY 480 put
Buy the SPY 470 put
Collect $2.50 credit
Max profit: $250 per spread (if SPY stays above 480)
Max loss: $750 (if SPY falls below 470)
Instead of risking tens of thousands buying the ETF outright, or taking unlimited risk selling naked puts, you’ve created a clearly defined trade.
The Real Lesson: Spreads Teach Discipline
Options trading isn’t about excitement. It’s about structure. Spreads enforce that structure by requiring you to think in probabilities, not predictions.
Successful investors don’t just control their money, they control their impulses. Spreads are a practical way to do exactly that. You can’t wake up to a catastrophic, undefined loss. You can’t blow up your account on one bad guess.
What you can do is repeat high-probability trades, manage risk with precision, and let the law of large numbers work in your favor.
Key Takeaways
Spreads define your risk and reward before you place the trade.
Bull put spreads work best when you expect stability or modest upside.
Bear call spreads work best when you expect stability or modest downside.
Consistency, not lottery tickets, is the goal.
Probabilities over predictions,
Andy Crowder
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