Articles

Soybeans are positioned such that a standard trade, using futures, call options and put options, speculates on a rise in price ahead of the USDA Crop Report. The image depicts more information than is posted. The key points to note are that a) the loss is limited by the possession of the put option, the […]

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Many traders prefer to be short and like bearish strategies.  Bearish strategies can be constructed using puts or calls.  The simplest bearish strategies involve buying put options, or shorting futures.   Buying put options or shorting futures can be rewarding, however buying a put burdens the trader with the problem of time decay.  Of course, time […]

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Although the S&P 500 Index has rallied for well over a year, the volatility in the index has declined considerably.  This means that you should select strategies that benefit from a rise in volatility. We do not have a bearish or bullish bias on the S&P 500 Index, however, through logical conclusion, it is not […]

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In a recent post, we wrote about using options on Corn futures to take advantage of a directional move using a combination of puts and calls.  The related post can be found here. This time, we will look at Walt Disney shares, which at the time of this writing, are trading at or near $33/share.  […]

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Time Decay and Theta

March 1, 2010

Time decay of options is a major factor to be considered when purchasing an option contract. Time decay of options, for puts and calls, is such that every option will theoretically lose some of its value every day.  The reason for this is that options have a limited life. The Greek term Theta is used […]

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We know that many options expire worthless. Time decay eats away at the value of the option and it usually expires extremely devalued, typically as a result of time decay. We can easily set up trades, while having a directional bias, and still avoid time decay. One way to accomplish this is by using a […]

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Volatility (Vega) in the grains complex is extremely low at the time of this writing.  We can capitalize on this a number of ways, using option spreads. In this article, I’d like to discuss the strangle.  This strategy exploits low volatility conditions allows us to capitalize on a potential move in the market, up or […]

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A Bear Call Spread and a Bear Put Spread have similar properties.  Graphically, they are similar and they are both constructed to profit from a declining market. When using a Bear Put Spread, the position is a debit spread.  When using a Bear Call Spread, the position is a credit spread.  When should use a […]

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A Bull Call Spread and a Bull Put Spread have similar properties.  Graphically, they are similar and they are both constructed to profit from a rallying market. When using a Bull Call Spread, the position is a debit spread.  When using a Bull Put Spread, the position is a credit spread.  So how do we […]

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This example involves speculation in a given market using futures and then using options to protect the position.  For example, suppose an investor was bearish the E-Mini S&P market and decided to sell a futures contract at 1130.00. If the investor was correct, it is then possible to combine options with the futures position in […]

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