Option Strategies

Picking the top or bottom of a long-term trending market is equally tempting as it is challenging. This post presents a trade designed to pick a short-term top in the S&P market. The most appealing aspect of this trade is that, if the position is entered and the market continues to rally, losses are minimal […]

{ 0 comments }

For those that have downside exposure in 401K investments in equities, or for investors that are simply long stock markets (Dow Jones, S&P, Russell or NASDAQ), using hedging techniques to protect these investments from unpredictable events is highly recommended. Investors that are long equities can hedge their portfolios by combining equity index options and equity […]

{ 0 comments }

Back Spreads using Options

January 25, 2010

A back spread is a good way to construct a limited risk option spread. It is especially effective if volatility is relatively low. Using a bullish call back spread as an example, this strategy involves buying 2 slightly out-of-the money call options and selling one slightly in-the-money call option.  This example uses options linked to […]

{ 0 comments }

This type of strategy is very interesting because of the flexibility in defining risk and reward.   It has limited risk, which you can define by choosing strike prices that work for you.  The idea concept is fairly simple. A futures position is taken in the direction of your bias.  It is immediately hedged with an […]

{ 0 comments }

Vertical Debit Spread The Vertical Debit Spread is a directional strategy and consists of purchasing an in the money option and selling an out of the money option of the same expiration month. A variation of this is to purchase an out of the money option and selling a further out of the money option.  […]

{ 0 comments }

We know that the bane of most option purchasers is time erosion – options tend to waste away, despite our hard work in trying to determine market direction and being correct with our market direction. Typically, one must pick the correct direction of the market to make profit on a calendar spread.  As discussed in […]

{ 0 comments }

Credit spreads can be an effective way of trading market direction. Important decisions that must be considered when using a credit spread include selecting the timeframe for the options as well as the difference in the strike prices. Factors that influence these decisions are associated with the degree to which the trader is bullish or […]

{ 0 comments }