Editor’s Note: We’ve got a party going on next week.

Head Trading Tactician Bryan Bottarelli and I are premiering our newest video “Trade Where the Millionaires Trade” on Wednesday, June 4 at 2 p.m. ET.

We’ll be kicking off this watch party event with a groundbreaking video where we show you how a secret group of ultra-wealthy investors splits up cash piles as high as $494,100 each day – and learn how to claim your share in future profits alongside them.

Click here to sign up our live watch party event today.

– Ryan Fitzwater, Publisher

If you’re not using spreads, you really should take the time to explore this strategy.

Spread trading is a great way to reduce your cost while increasing your upside or generating income.

We’ve been using this strategy in The War Room, and already we’ve closed out several spreads for gains – some in the triple digits!

On top of the gain potential, spreads also offer significant risk reduction… which is something that you need especially in this market.

What is a Spread?

Simply put, a conventional spread is the distance between two points. In the options world, it is the distance between two prices. For example, we recently closed out a +60% on an ETF for German stocks of all things (in 5 trading days).

Some War Room members even cashed out for a triple-digit gain, like BryanK1…

That EWG spread was a Vertical or Bull Spread, which was a bet that the shares would move higher. We used a spread to reduce our cost while allowing for a substantial upside.

We took the spread route because the options were very expensive.

By using a spread, we reduced our cost significantly, reduced our break-even point and increased our chance for success. But we also limited our upside as a result. Remember – nothing is free on Wall Street. If you want to reduce your risk, you will reduce your return as well.

Example of a spread

Let me illustrate a vertical spread with an example.

Stock X is trading for $10. I think it will move to $13 within the next 12 months, maybe more.

I can buy a $10 call option with a one-year expiration for $1.80. So, for 10 contract it would cost me $1,800. The $13 call is trading for $1.

Now, let me use a spread. If my target is $13 then I would buy the $10 call for $1.80 and SELL the $13 call for $1. My cost is now $0.80 or $800.

That’s a $1,000 difference between a call option and a spread!

Of course, my upside on the spread is capped at $13 minus $10 (the spread) or $3. So, my max gain is $2.20 ($2,200 for 10 contracts) or almost 200% (if the shares close at $13 at expiration), and my max loss is $0.80 if the shares close under $10 at expiration.

If I bought the $10 call option without a spread, and the shares closed at $13, I would make $1.20 ($3 minus $1.80) or $1,200. If the shares closed below $10, I would lose $1,800.

The only case when a call works better than a spread

The only way that the non-spread trade is better using the above scenario is if the shares move above $14 which would then put the non-spread trade on a higher profit trajectory as there is no upside cap.

Spread trading isn’t for everyone…but it should be! It’s a great way to reduce your cost while increasing your upside or generating income.

But you need to get up to speed on how to trade spreads and you need permission from your broker – something you will get when you can show them you know what spreads are all about! We currently have a few spread trades that are still in “buy” range in the War Room.

YOUR ACTION PLAN

This is what we do every day in The War Room – we make bets using proven strategies and we explain how to do the trade as well!

Our Headquarters is stocked with video and written tutorials that walk you through every type of trade we do, step by step. And, of course, we have the best real time platform and moderators to answer any questions you have about how to execute the trades.

Click here to join The War Room today.

FUN FACT FRIDAY

Sell in May and Go Away? Not This Year: The S&P 500 is wrapping up its best May since 1990, with a 6% gain. The last time there was this much of a boost was May 1990, when the S&P rose 9.2%. This surge defied the old “sell in May and go away” adage, thanks to tariff delays and strong tech earnings.