Horizontal spread is an option TRADING strategy which is created by simultaneously purchasing and writing two options on the same asset (stock) and strike price but different expiration you date. Horizontal strategy is most known ace Calendar spread because the options there are different expiration dates. Calendar spread, one of many different option spreads, is to neutral strategy.
You only make profit if the underlying price does not move to lot or only moves in a tight range. If the stock rises or drops to lot, you will not get profit because of the volatility. This is to not to not risk option strategy, but it does have low risk. There is not such thing as no risk option strategy. Calendar spread options strategy makes profit from the difference of option premium decay or the difference of implied volatility. Options which is near month expires will lose its value very fast. On to other hand, option which is farther month from expiring will lose its value slowly. Traders will implement to calendar spread by buying option which is farther out and selling a near month.
After some time they will review the position by buying the option they previously sell and selling the option they previously buy. This is also called spread TRADING. Investors can buy call options or buy put options with this strategy. But I prefer using put options because it is cheaper. I will give you an example. Share of a stock XYZ are trading at $50 . To create a calendar spread, you want to buy September $50 call and sell August $50 call. The September call will COST you $6 and August call will give you $4. The $2 spread is the total cost of the strategy. For this strategy to work, you will want August call to lose its VALUE to faster than September call.
In July the options might look like this. August call will worth $1 and September call will worth $4. Your spread will will increase to $3. You profit will sees the spread difference which is $1. In order to work the underlying stock price must remain stable. Any drop or rise will affect the Time VALUE and option price. Calendar spread sees used to make monthly income and that’ s why it is called income strategy. You don’ t need the stock to move to be successful.
For best candidate this strategy looks for channeling or sideways stocks. Those stocks tend to move in a small range. Here are some tips when choosing the stock: Don’ t choose volatile industry like technology or commodity companies. Don’ t have earning release in the coming months. For the news or the their website for possible take to over or mergers.
It’s true – you can own your favorite stocks at no cost or at deepest discounts! Learn the highly guarded, secret Option trading strategies professional investors use to make steady profits, year after year, no matter what the financial markets do. This article will show you the step-by-step process of using Options to get the stock you want at a deep discount, and sometimes at zero cost. Since trades don’t always go the way we planned, so we will also explore the worst case scenario. Properly executed, these strategies have the advantage of minimal expenses – something everyone can appreciate during these troubled times. The following example will demonstrate how this is done. Do your fundamental analysis as you would do for any stock that you would like to buy and hold for long-term appreciation. Look for companies with strong financials and superior performance within their industry segment. Perhaps you’ve wanted to own the stock of a certain company for some time, but were not willing to pay the price. For those stocks, analyze Out-of-The-Money (OTM) Put Options with expiration dates between 30 to 60 days. An OTM Put Option is a Put Option with a strike price lesser than the current market price of the underlying stock. We are looking for a Put Option with high premium which we can sell. Sell the Put Option. Your trading account will get credited with the put premium amount. Example: XYZ Corp. (a fictitious name used for this example) stock has a current market price of $54 on July 1, 2009. August 2009 Put 50 is having a premium of $4. You sell 1 contract (100 shares) of August 2009 Put 50 to get a Credit of $400. If you had bought 100 shares then you had to pay $5,400 but now you are controlling the same number of shares and getting paid $400 for doing that! Technical Tip: The seller of a Put Option is obligating himself to buy the stock at the striking price. For assuming this obligation, he receives the Put Option premium. For the more technical readers we have provided an in-depth article link at the bottom of this article. On August 21, 2009, the day your August Put Option expires, two scenarios are possible: Either the stock price is greater than or equal to $50, or it is less than $50. Let’s evaluate both scenarios. Scenario 1: The stock trades at $50 or above: in this case the Put Option will expire worthless and you get to keep the $400 that you received earlier. You can now repeat the strategy month after month. When carefully executed, you would have earned around $7,200 in 18 months without ever paying a dime and without even owning the stock. Let’s assume the share price for the stock has gone up 41% to $72 over the course of those 18 months. If you now purchase the 100 shares of XYZ Corp. , the cost of ownership to you is ZERO, as you would have offset the $7,200 required for that purchase by your strategy earnings. You are now the proud owner of 100 shares XYZ Corp. at no cost to you. Scenario 2: The stock trades below $50, say at $48 (a drop of 11% from $54). In this case the August Put Options will be In-The-Money (ITM) and now you need to buy 100 shares of XYZ Corp. at the strike price of $50. But here is the best part: You get to keep the $400 that you earned earlier selling the Put Option. Your effective cost for this trade is $4,600 after adjusting for $400. Compare this with someone who bought 100 shares at $54. Share traders ended up with a loss of $600 while you had a modest profit of $200 instead. Well not as good as Scenario 1, but not bad either! The strategy acts like a low-cost replacement for actual stock ownership, BUT you must be prepared to take ownership of the shares under Scenario 2 circumstances. Keep in mind that this is a long-term strategy. There are many different ways to construct these strategies – conservatively or aggressively. Just like regular investing, different people have different levels of risk tolerance. If you want higher profits, you’ll have to be willing to take higher risks. At TradeGreeks we avoid high risks that MIGHT hit the big jackpot. Our focus is on conservative strategies with medium to long-term consistent, predictable returns. This will ensure great profits that beat anything else you might try in this market – sometimes well over 100% per annum. What’s even more important: Our strategies ensure peace of mind! This is an article from the TradeGreeks’ “Tactical Series” More in-depth explanations of this strategy can be found in our article “Uncovered Put Writing – Insider’s Guide”. We invite you to visit http://www. tradegreeks. com/ and register for free no obligation membership. This will allow you access to the article and many other educational resources regarding trading of Options.
Is there really such a thing as options trading strategies that work? Surely, there is. All you have to do is discover and learn a few of these trading principles and techniques. While some concepts give us a full view of technical terms, learning the following practices can very well give you tons of rewards and benefits. Be reminded that option trading is tricky and complex, especially if you are clueless as to when to make that right sale or purchase. On the other hand, you need not have to be disheartened. As online trading advisers always say, everything about options trading need not be too complicated. Dealing with stock options is like putting your hard-earned money to a valuable investment. It is like plowing that field for a potential harvest in a number of months time. With regards to options contracts, you just have to be knowledgeable in terms of value and price indicated in said contracts. Expiration dates are also a thing to care about. The discipline behind options trading encompasses simple steps. To determine options trading strategies that work likewise employs particular practices. First, learn when to negotiate and do it properly. If you want higher income, you may go for long-term securities. But if you want an investment with shorter timetables, then stock options is the best alternative. Studying the options contract is also necessary, particularly if you do not want such contract to expire worthless. Second, be wary of OTMs. Out of the money transactions do not fare well for rookie traders, all because OTMs rely on stock price movements. We all know how hard it is to anticipate trends and even professional traders find it difficult to determine price movements. Third, maximize every opportunity to earn by engaging in trade earlier. This usually occurs when an investor decides to sell his options prior its expiration date. Liquidity has always been important and waiting for your options contract to just expire is not the best practice. Fourth, never underestimate the value of commodity stocks. It has been said that big surprises come in small packages and the same idea can be applied to commodity stocks. This may be non-conservative but surely passes as one of the options trading strategies that work. It can also be true that industries are ruled by stable companies but investing in smaller yet thriving brands can also lead to financial success. Indeed, knowing only the essentials in options trading can do wonders. Thanks to the many information provided by online sites and real-life experts. Understanding and knowing these options trading strategies that work will not only assist you in trading, for it can also give you that much needed confidence in investing.