New traders are sometimes astonished at the size of the trades an experienced option trader is prepared to make

New traders are sometimes astonished at the size of the trades an experienced option trader is prepared to make.

How can the trader afford to do this? His financial resources certainly play a role in the risk he is willing to accept. But equally important is his ability to spread off risk.

An experienced trader may know many different ways to spread off the risk, using other options, futures contracts, cash contracts, or some combination of these.

While he may not be able to completely eliminate his risk, he may be able to reduce it to such an extent that his risk is actually less than that of a much smaller trader who does not know how to spread or knows only a limited number of spreading strategies.