As with most books on the topic of how to trade options, the amount of material to get through can be daunting. For example, with Sheldon Natenberg’s Option Volatility & Pricing, it is about 418 pages to digest. There are adequate reader reviews on Amazon and Google Book Search, to help you decide if you [...]
Not all volatilities are constructed equal. It is critical to differentiate between Historical Volatility and Implied Volatility, so retail traders learn how to trade options focused on what is material to theoretically price option spreads forward.Historical Volatility (HV) measures past price movements of the underlying asset recording the asset’s actual or realized volatility. The more [...]
Like most trades, time spreads have a maximum loss for the buyer. You can only lose what you have spent. If you paid $1.00 for the spread, your maximum potential loss is $1.00. If you bought the spread for $2.00, the maximum potential loss is $2.00.
The buyer of a time spread will purchase the out-month [...]
The seller of a time spread buys the nearer month option and sells the outer-month option in a one-to-one ratio. To profit from the sale of the time spread, the seller must look for two things.
The first is a decrease in implied volatility. As volatility decreases, the out-month option (which the seller is short) loses [...]
Like most trades, time spreads have a maximum loss for the buyer. You can only lose what you have spent. If you paid $1.00 for the spread, your maximum potential loss is $1.00. If you bought the spread for $2.00, the maximum potential loss is $2.00.
The buyer of a time spread will purchase the out-month [...]
The seller of a time spread buys the nearer month option and sells the outer-month option in a one-to-one ratio. To profit from the sale of the time spread, the seller must look for two things.
The first is a decrease in implied volatility. As volatility decreases, the out-month option (which the seller is short) loses [...]
In options trading, there are some basic lessons that are the backbone of many other successful options trading strategies. How to engage in spread trading in options trading to enhance potential gains is one of these lessons.
Spread trading is a foundational tool that you should have in your options trading toolkit. It will [...]
Time spreads, also known as calendar spreads, are an ideal way to take advantage of time decay and changes in implied volatility. Time spread strategy focuses on the movement of time and volatility more than on the movement of the stock. Therefore, it is perfect for when you anticipate stagnant or explosive periods in a [...]
Professional traders use the term lean to refer to one’s perception about the directional strength of the stock. When you own a stock and intend to hold it for a period of time, you are aware that you will probably be holding it while it goes up and while it goes down.
This means that at [...]
When vertical spreads are mentioned, they quite often come with monikers such as ‘bull’ and ‘bear’. This lends most to think of vertical spreads as directional plays which is true. However, vertical spreads can be used to take advantage of two other potential trading opportunities – time decay and volatility movement.
If you are looking for [...]