Every trader must have known risk levels in order to properly manage risk PRIOR to entering a trade. Once the risk levels have been identified we can create an option product to meet the trader’s forecast. For example if QQQ is at 340 and we think it will hit 350 in the next two weeks we won’t buy a 350 strike call option. We will buy a call option relatively close to the money and sell a call further away from the money. If we were to create a 345/355 bull call, not only will it become profitable if we close at expiration above 345 (neglecting the price paid for premium for simplicity), but also, we will save money in the event that QQQ closes below 350 at expiration and we miss our forecast. H3: In other words, we will end up paying less for a spread vs buying a single call option and may even make money if we are wrong in our forecast – closing below 350 but above 345 at expiration. H3: creating a simple vertical spread is one effective way to limit risk and become efficient when trading directions in the market.