The drawback of selling naked options is that such a transaction entails assuming unlimited risks to make limited gains. Selling vertical spreads enables traders to sell stock options without having to face unlimited risks.

Basically, traders may define the maximum risks associated with a vertical spread because the sell an out-of-the-money call or put stock option and purchase an even further out-of-the-money call or put option. This way a trader can stand to gain from time decay or a decline in volatility or both.

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