In this article:
Overview
Options spreads are advanced trading strategies that involve buying one option and simultaneously selling another option on the same underlying asset. This approach can be used to manage risk, reduce capital requirements, or execute a specific market view.
We now support the following multi-leg strategies:
- Vertical spreads (same expiration, different strike prices)
- Calendar spreads (different expirations, same strike price)
- Diagonal spreads (different expiration and different strike prices)
You can enter and exit all legs of a spread with a single transaction and view the position as one consolidated trade.
Eligibility requirements
To trade advanced options strategies like Vertical, Calendar, and Diagonal spreads, you must have a margin account.
You can't trade these spreads in registered accounts (like a TFSA or RRSP) or in a non-registered, non-margin account.
How to place a two-leg spread trade
You can build a spread trade directly from the option chain on the app or web. The platform will execute your strategy with a single, unified order, meaning you won't have to place separate buy and sell orders for each option. To do so, follow these steps:
- Log in to the Wealthsimple app
- Tap the Search (magnifying glass) icon at the bottom of the screen
- Use the search bar to find the security you want to trade options on
- Tap Trade
- Tap Trade options
- Select your desired call or put options
- Tap Next
- Set up your spread by modifying order details
- Tap Next
- Review your order details
- Tap Submit order
- Log in to your Wealthsimple profile
- Use the search bar to find the security you want to trade options on
- Select the Options tab
- Select your desired call or put options
- Set up your spread by modifying order details
- Select Review
- Review your order details
- Select Submit order
Understanding spread types
Understanding the spread type helps you choose the right strategy based on your market outlook.
Vertical spreads (same expiration, different strike prices)
These are defined-risk strategies where you buy one option and sell another of the same type (call or put) with the same expiry date but a different strike price. This caps both your profit and your loss.
| Spread type | Market outlook | How it works |
|---|---|---|
| Call debit spread (Bull Call Spread) | Moderately bullish (you think the stock will rise) | You pay a net amount (debit) to enter the trade. You buy a call at a lower strike and sell one at a higher strike price. |
| Put credit spread (Bull Put Spread) | Moderately bullish or neutral (you think the stock will stay above a certain level) | You receive a net amount (credit) to enter the trade. You sell a put at a higher strike and buy one at a lower strike price for protection. |
| Put debit spread (Bear Put Spread) | Moderately bearish (you think the stock will fall) | You pay a net amount (debit) to enter the trade. You buy a put at a higher strike and sell one at a lower strike price. |
| Call credit spread (Bear Call Spread) | Moderately bearish or neutral (you think the stock will stay below a certain level) | You receive a net amount (credit) to enter the trade. You sell a call at a lower strike and buy one at a higher strike price for protection. |
Calendar spreads (different expirations, same strike price)
Also called a time spread or horizontal spread, this involves selling a short-term option and buying a longer-term option, both with the same strike price. The strategy aims to profit from the faster time decay of the short-term option you sold. They are typically used for a neutral outlook, where you expect the stock to trade sideways for a period of time.
- Call calendar spread (neutral)
- Put calendar spread (neutral)
Diagonal spreads (different expiration and different strike prices)
Diagonal spreads are a hybrid strategy that combines elements of both Vertical and Calendar spreads. You sell a short-term option and buy a longer-term option, both with different strike prices. This offers a high degree of customization for your market outlook.
- Call diagonal spread (moderately bullish)
- Put diagonal spread (moderately bearish)
How to close a spread
You can close a spread from the app or web by following the steps below:
- Log in to the Wealthsimple app
- Tap the Invest tab
- Scroll down to Holdings
- Tap the spread position you wish to close
- Tap Close
- Enter the quantity, limit price, and expiration date
- Tap Next
- Review your order details
- Tap Submit order
- Log in to your Wealthsimple profile
- Navigate to your Holdings list and enter fullscreen mode (two arrows icon)
- Hover over the spread position you wish to close
- Select Close
- Enter the quantity, limit price, and expiration date
- Select Next
- Review your order details
- Select Submit order
Frequently asked questions
What's the main benefit of trading spreads instead of single-leg options?
Spreads offer two primary benefits: Defined risk and capital efficiency. For most spread strategies, you know your maximum possible loss before you place the trade. They also often require less capital (margin) to open a position compared to buying or selling a single option.
What are the risks of trading spreads instead of single-leg options?
While spreads can help define your risk, they also introduce their own trade-offs. The main risks include:
- Capped profit: In exchange for limiting your potential loss, you also limit your maximum potential profit.
- Early assignment risk: Every spread involves selling an option, which means you could be assigned early. This can unexpectedly change your position and require further action.
- Complexity: Spreads have multiple moving parts. Misunderstanding how the different legs work together can lead to unexpected losses.
How do I know if a spread is a "credit" or "debit" spread?
This refers to the net cash flow when you open the position.
- A credit spread means you receive money (a net credit) in your account to open the trade. This credit is your maximum potential profit.
- A debit spread means you pay money (a net debit) to open the trade. This debit is your maximum potential loss.
What are the fees for trading these spreads?
We've removed commissions for buying and selling options spreads. However, you'll still have some standard fees that apply:
- FX conversion fees: If you trade US-listed options in a CAD-denominated account, the standard FX fee will apply.
- Exercise fees: Fees for exercising an option on a short leg of a spread aren't waived.
Learn more about options trading fees and taxes.
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