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.

Three Winning Bear Market Option Trading Strategies Revealed

July 3, 2010 by  
Filed under Option Trading

Most people lose money in a bear market. Do you remember the tech bubble and recession in 2000-2002? This article will discuss three option trading strategies that can make you big profits in a bear market or recession.

Option Strategy No. 1 – Buying Put Options

It is fairly easy to purchase put options. This option trading strategy can even be used in an IRA account as long as you have been authorized by your broker. You desire to select a stock, which you feel has a good chance of going down in price. Your risk will be limited to the cost of the put option. For example, stock XYZ is currently trading at $50 per share and you buy a put option on XYZ with an expiration date of two month later with a strike price of $50. If the stock drops from $50 to $40, your put option would be worth $10 per share.

Option Trading Strategy No. 2 – Buying Bear Put Spread

Buying a put spread is a little more complicated than just buying a put option but gives you the benefit of reducing your cost but caps your profit. A put spread is characterized by the trading of two same month expiration put options, buying one at a given strike price and selling the other put option at a strike price lower than the purchased put option. You want to pick a stock that you believe will be falling in value. Your risk will be limited to the cost of the put spread. As an example, if we purchase the put option as listed above but also sold a put option with a strike price of $45. In this example, should the stock plunge to $40, you would profit $5 per share ($50 strike price – $45 strike price). And while you are making less per share, your savings comes in the fact that the cost of buying the put option outright would be much higher than the initial cost for the bear put spread.

Option Trading Strategy No. 3 – Married Put

Risk can be minimized by utilizing a married put, which is a hedging strategy. This strategy consists of purchasing a stock that you believe will appreciate in value and buying a put option at the same time to minimize any losses due to adverse market movement. You might have heard the saying that there is always a bull market going on somewhere. In order to benefit from this strategy find out what business sectors and securities go against the grain and appreciate in a bear market. Next you buy the stocks you chose and protect your investment by buying a put option to limit your losses if the stock goes south.

In conclusion, you can still make big profits in bear markets by looking for stocks that you think are going to fall in price and buying a put option or a bear put spread. Alternatively, you could buy a married put on a stock in a sector you believe is going to appreciate, thus minimizing your risk. In addition to buying options on stocks, you can also buy put options on exchange traded funds or index options. Exchange traded funds let you invest in global markets, commodities and even currencies. It is possible to receive a large profit in a bear market. However, it is vital to comprehend the details of the option strategies, choose the correct stock, exchange traded fund or index option, and make use of a proven tactic and begin.

Disclaimer: This article should not be used as financial advice; it is only for informational purposes. Be sure to contact your financial advisor prior to making any decisions on investing.

Author Biography – John Hart is an accomplished option trader, focusing on developing innovative and unique option trading strategies, approaches and methodologies. For a limited time, you can sign up to his newsletter absolutely free by clicking on this link ? option strategies newsletter.