Final answer:
In a spread, more options contracts are sold than bought, in a strategy known as a credit spread. This approach aims to receive a net credit from the difference between the options sold and bought, depending on the market movements.
Step-by-step explanation:
In a spread, you would sell more options contracts than you'll buy. This type of spread is called a credit spread and is used in options trading, a component of financial markets. A credit spread involves selling options contracts at a certain strike price while simultaneously buying a smaller number of options contracts at a different strike price. The goal of this strategy is to receive more premium from the options sold than the cost of the options bought, resulting in a net credit to the trader's account.
If the market remains favorable according to the trader's expectations, the options sold may expire worthless, allowing the trader to keep the premium received. However, if the market moves against the trader's position, the losses may be limited to the difference in strike prices minus the net credit received. Different types of credit spreads include bull put spreads and bear call spreads, each signifying a bullish or bearish outlook on the underlying asset, respectively.