Calendar Spread Option Trading Strategies

October 7, 2011 by  
Filed under Option Trading

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.

Discovering the exact option for TRADING strategies to business is not difficult by getting the exact dates and ready to take the risk. You dog also visit this site http://bestoptionstrategy. com/calendar-spread/for dwells info.

Option Credit Spread Trading – Limited Risk with Limited Profit

August 24, 2010 by  
Filed under Option Trading

I started trading options in the late 90’s. After selling my first option and collecting an immediate credit I and became an option seller for life. I became a student of option selling strategies and started selling covered calls on stocks I brought and owned. I was doing OK collecting premiums month after month until a few of my stocks tanked and my losses over a 2 month period wiped out 6 months of profits. My mistake was picking not so good stocks for this covered call option selling strategy. So I became a student again and discovered an option trading strategy that is truly amazing.
Selling Option Credit Spreads on the broad based stock indexes was my new strategy. My goal was to collect premiums each month using OTM (Out of The Money) options spreads, specifically Bull Put Spread and Bear Call Spreads on the SPX index. I was choosing spreads that were very far OTM so that I had a greater cushion which reduced my risk.
Selling spreads is more akin to waiting for the big move to occur and it rarely does. Time decay is very relevant because despite being a spread, the spread does have a significant rate of decay in the last week or two. The beauty of this strategy is that you do not necessarily need to sit on top of it all the time. If your strikes are 40-60 points OTM and the SPX is up 1. 20 today, you gain nothing by checking the quotes every minute. You can just check in the morning and at the close at your leisure as long as you are sufficiently OTM. When the market starts moving closer to your short strike, some due diligence is required. With credit spreads you want the position to expire worthless or buy back for way less that you sold it for.
The goal is to collect premium month to month. Using OTM spreads is a way to do this without predicting the market for the month. In any given month, the market can still move sideways, lower or higher and your positions will still be profitable. You are trading without concern over market direction for a major crash lower.
Today I employ a very safe and conservative Iron Condor credit spread trading strategy. My strategy with iron condor trading is to leg into the trade by selling the Bull Put Spread first for . 20 – . 25 cents. This is only a 2% – 2. 5% return but the trade is very safe and the short strike is usually 60 points or more away from the current index price. I will then complete the condor by selling the Bull Call Spread later on for another . 20-. 25 cents, but only if the trade is safe. Safety is the key to my strategy with a goal of earning on average a 3% return each month.

Brad Griffin is an Accountant and CPA and has been investing in U.S of the Stock market by 10 años and the markets of options for the últimos 5 años. Now I am sharing my knowledge and the options of éxito in the TRADING in my p

How to Calculate the Volatility of the Spread in Options Trading

August 14, 2010 by  
Filed under Option Trading

In order to be able to calculate the volatileness of propagacià ³ n, we must equal volatilenesses of the options individuales.& #13; First of all, we are going to move of June of calls being moved the implÃcita volatileness of June by 40 to 36, one disminucià ³ n of four garrapatas volatileness. Four volatileness of the garrapatas, multiplied by a fertile valley of. 05 by tick give a value us of $. 20. To continuacià ³ n we reduced $. 20 of June the present value of 70 opcià ³ n of $ 2. 00 and obtains a 36 value of $ 1. 80 to volatileness. Now the two options are evaluated in a base volatileness igual.& #13; As far as this first adjustment in which trasladà ³ the 70 of June of volatileness up to 36 from 40, we have a value of $ 1. 80 to 36 volatileness. 40 August call volatileness has a value of $ 3. 00 to 36. Therefore propagacià ³ n valdrÃ$ 1. 20 to 36 volatilidad.& #13; If you want to move August 70, solicits that, you tomarÃa the fertile valley August of call of 70. 08 and multiply by four the difference of implÃcita volatileness of garrapatas.& #13; This gives a value him of $. 32 that must be añadir to the present value of August of 70 calls with the purpose of to take it until an equal volatileness (40) with 70 June of call. To add $. 32 to 70 of August of call give to 3 dà ³ him lares. Value of 32 in the level of volatileness of the new ones of 40 that is the same level of volatileness that June 40 llamadas.& #13; Now, ours expansià ³ n is a value of $ 1. 32 to 40 volatileness. August 70 calls of $ 3. 32 except 70 June to two the calls of dà ³ lares. 00 to fix the price of propagacià ³ n to 40 volatilidad.& #13; ³ n does not make any difference of opcià that to move. The point is to establish the same level of volatileness for both options. Then already estÃready to compare apples with apples and the options to the options for a value of propagacià exact ³ n and level of volatilidad.& #13; Since now we have an equal base of volatileness, we can calculate propagacià ³ n of fertile valley taking the difference between opcià ³ n from two fertile valleys individual. In the previous example, propagacià ³ n fertile valley is. 03 (. 08 -. 05). The fertile valley of propagacià ³ n calculates finding the difference between those of the fertile valley of the two individual options, because in the time of propagacià ³ n, that pasarÃlong time one opcià ³ n and cuts the other opcià ³ n.& #13; As volatileness moves a garrapata, you ganarÃthe value of fertile valley one of the options at the same time of losing the value fertile valley of the other. Therefore propagacià ³ n of fertile valley must be equal to the difference between the fertile valley of two options. Therefore, ours expansià ³ n is a value of $ 1. 20 to 36 with a volatileness. 03 fertile valley or $ 1. 32 to 40 with a volatileness. 03 vega.& #13; Returning to our value difusià original ³ n of $ 1. 00 with a fertile valley from. 03, now we can calculate the volatileness of which propagan.& #13; We know the difference is a value of $ 1. 20 to 36 of volatileness with a fertile valley of. 03. Therefore, we can suppose that the commerce of difusià ³ n from $ 1. 00 deberÃto develop a commercial activity in a volatileness smaller than 36.& #13; In order to know cuÃnto mÃs under is in the first place to take care of the difference both enters values extended and that is of $. 20 ($ 1. 20 to 36 volatileness less $ 1. 00 a? Volatileness). Soon we divided $. 20 by fertile valley propagacià ³ n of. 03 and we obtain 6. 667 garrapatas volatileness. To continuacià ³ n, to reduce 6. 667 garrapatas volatileness of the volatileness of 36 and we have 29. 33 of volatileness for the commerce of difusià ³ n from $ 1. 00.& #13; También can determine the volatileness of propagacià ³ n like changes of prices of propagacià ³ n. We are going to fix the price of difusià ³ n from $ 1. 30. In order to calculate this, first we must have the value of propagacià ³ n ($ 1. 20 to 36 volatileness) and of finding the difference in dà ³ lares between éste and the new price of propagacià ³ n ($ 1. 30). The difference is of $. 10. This difference in dà ³ lares now is divided by the fertile valley of the differential. $. 10 divided by the difference. 03 fertile valley gives to a value of 3. 33 garrapatas volatileness him. Soon one adds the 3. 33 garrapatas to the volatileness of 36 and propagacià is obtained 39. 33 like the volatileness of the interchanges ³ n from $ 1. 30.& #13; Double-Go to verify our work by means of cÃlculo of the volatileness of the other manera.& #13; This time we are going to do cÃlculo moving the August 70 calls to the volatileness of the base of the June equality 70 calls. Según the calculated thing previously, the August 70 calls tendrÃa value of $ 3. 32 to 40 volatilidad.& #13; The June 70 two calls are worth dà ³ lares. 00 to 40 volatileness. AsÃ, the difference is a value of $ 1. 32 to 40 volatilidad.& #13; Now we are going to move the new price extendià ³ to $ 1. 30, $. 02 mÃlow s that the value of propagacià ³ n to 40 volatileness. Like before, we took the difference in the prices from propagacià ³ n. The result is $. 02 ($ 1. 32 – $ 1. 30). Then, it divides $. 02 by fertile valley ours expansià ³ n of. 03 (it remembers that the fertile valley of propagacià ³ n is equal to the difference between the fertile valley of the two individual options). $. 02 divided by. 03 give a value us of. 67. That. 67 the volatileness of our base of 40 is due to remain. That gives 39 us. 33 (40 -. 67) the volatileness of the interchanges propagacià ³ n from $ 1. 30. This volatileness responds ours cÃlculo previous to perfeccià ³ n.& #13; Perhaps at first sight, it is asked for qué we went to través of all these cÃlculos. With the June 70 calls to 40 volatileness, the two price of dà ³ lares. 00, fertile valley. 05 and 70 of August to the 36 calls of volatileness, the three price of dà ³ lares. 00, fertile valley. 08 Âby qué not to have an average of volatileness? This us darÃa a volatileness 38 for difusià ³ n with a price of $ 1. 00 when in fact $ 1. 00 in extensià ³ n represent 29. 33 volatilidad.& #13; This serÃa almost nine by garrapatas ones difference that represents a friolera error of 30%! Because, as it were said previously, Fertile valley is not linear, every month of way cannot be weighed uniforms and finishes both taking an average from months. By the love of argument to suppose it did that it. We say that you find the difference of fertile valleys of the options and came above for with one propagacià ³ n of the fertile valley. 03 that is the correct one. Nevertheless, when ³ n tries to calculate the volatileness of propagacià and the price that tendrÃan dificultades.& #13; Now, ³ n with the price of cotizacià returns to calculate propagacià ³ n of $ 1. 30, or $. 30 mÃhigh s that its value in 38 volatileness. It divides that $. 30 fertile valley differentiates superior in difusià ³ n from. 03. You obtain an increase of 10 by garrapatas volatileness. Añade that increases to base 38 volatileness. That means that you feel propagacià ³ n negotiates to 48 volatileness instead of 39. 33 volatileness! This type of error podrÃa to be very, very expensive. It remembers, apples with apples, oranges with oranges. It does not matter that volatileness opcià ³ n of propagacià ³ n to move the time as both options for a volatileness of the equality base.

Rum Ianieri is at the moment head strategist of options in the University of options, one compañ

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