Option spreads can be used in a number of ways, its definition is simply taking opposite positions in terms of buying different strike prices on the same or different expiry dates for the same traded underlying financial instrument, thus creating a spread of positions as part of a single strategy.

 
   

Option spreads can be used in a number of ways, its definition is simply taking opposite positions in terms of buying different strike prices on the same or different expiry dates for the same traded underlying financial instrument, thus creating a spread of positions as part of a single strategy.
Advanced traders will also trade cross market spreads a combination of spreads on different traded underlying financial instrument (See example).
Advantages:
1. Even though it will cost you more in transaction fees, the overall position will usually be cheaper than just straight out buying mainly because of time decay. This can make all the difference of having more control over money management.
2. Options spread trading will usually reduces the element of option pricing i.e. implied volatility.  On special situations such as long calendar spread it will do the opposite. Implied Volatility rises when uncertainty in the market rises (Mostly over a declining period).
3. Options spread trading will allow more flexibility when choosing the expiry date, because in most of the trades, variable such as time decay will not be an issue. This will allow you more time to be right and make a profit.
4. Option spread trading could be also an advantage in a situation that the instruments price goes against you. That means that one of the spread legs is profiting and the other is losing. You can now close a fraction of what you received for it. If you've allowed long dated trade, you now hold only your open position and simply wait for the underlying price to go in your favor again.
Spread Trading is divided to three main categories: debit and credit spreads refer to mostly, buy one sell one. 

 

 

Debit Spreads - Takes funds from your account because you are buying the more expensive leg and selling the cheaper.
Credit Spreads –these occur when you do the opposite to the above. You sell the expensive and buy the cheaper one. Option prices closer to the money will be more valuable than those out of the money. Your account will be credited.
Other Spreads – is the largest group since there are a lot of variations trading the spread and considered as more advanced strategies. Strategies such as ratio- spreads, range trading spreads butterflies and condors are complex.
Other Spreads - There are more advanced strategies, such as ratio back-spreads, range trading spreads like calendar spreads, butterflies and condors - and delta neutral spreads such as straddles and strangles. They are more difficult to explain and each one of them could be the basis for an article in itself.