Understanding what we mean by an “Edge” in an Options trade.
Let’s take the example of a Bull Call spread. It’s a great spread, low risk with higher reward. The downside is that you have to be Directional, so that element of uncertainty does not go away.
In this situation, how could you build an “edge” into a Bull Call spread ?
The Video below describes a simple, but powerful tactic for providing the “Edge” to a Bull Call spread.
What exactly is an “Edge”
Many traders think that an Edge must be very complicated. It can be, but it can also be the simplest thing. Simply put, an “edge” is any tactic or technique that can provide an advantage by way reducing risk, improving rewards, or reducing margins with very little negative consequences. For example, the Bid-Ask spread is an “edge” to the Market maker.
The edge will be different for different strategies:
– Sometimes the edge is based on protecting downside
– Sometimes it is increasing the upside, and and sometimes both.
– There are Time decay edges, Volatility edges, Adjustment edges etc.
There are many ways to provide an advantage to the trade. The key is to build this sort of arsenal so you can get them out when you need.
Bull Call “Edge” video below.
And yes, the title is correct – let us know if you’d still trade a Bull Call once you know that you can trade one with an Edge.