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intro to spreads

Long Put Vertical

Analyzing the risk profile of a long put vertical

Long Put Verticals Compared To Short Shares

Now, let's compare the risk profile of a long put vertical to that of 100 short shares. Both positions would profit in a market selloff, however the long put vertical has a much lower potential for profit. On the other hand, short shares carry far more risk than the vertical. Beyond a certain width of spread, however, the odds of reaching either strike become so low that the risk profiles of both strategies become very similar.
Figure 1 Figure 2 Figure 3

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