Recent Articles and Videos


An Imaginary Spread Scenario

Tuesday, December 25, 2007
Filed Under Intermediate Options Trading 

We are going to put together an imaginary spread scenario and set it in real life events. Consider that, in October, you begin to hear about IJK stock. It looks interesting, so you use a variety of sources to learn about it. (News, charts, outside analysts, Internet research, etc.) From your investigations, you decide that…click to read more.

The terms “bull” and “bear” are often associated with vertical spreads. This leads most people to think of vertical spreads as directional plays, which is true. Vertical spreads can also be used to take advantage of two other potential trading opportunities – time decay and volatility movement. Using Vertical Spreads to Take Advantage of Time…click to read more.

Volatility

Sunday, December 23, 2007
Filed Under Intermediate Options Trading 

To get a firm grasp of volatility’s effect on vertical spreads, let us examine three spreads against different implied volatilities while keeping the stock price constant at 67 ½. These are the 60 – 65, 65 – 70 and 70 – 75 call spreads.The chart below illustrates how volatility movements affect in-the-money, at-the-money and out-of-the-money…click to read more.

Getting Out or Rolling the Position

Saturday, December 22, 2007
Filed Under Intermediate Options Trading 

The selection and management of a vertical spread are only two-thirds of the game. Closing out, rolling or morphing the position has to be analyzed and executed with the same due diligence.Looking at the closing out of a vertical call spread, we find there are three possible outcomes. The spread can finish out-of-the-money and valueless.…click to read more.

Construction of a Vertical Spread Construction of a vertical spread occurs with the purchase and sale of a call (put) in the same stock and in the same month. The only difference between the two options is the strike price. For example, an investor would construct a vertical spread by purchasing the IBM June 55-call…click to read more.

An investor must always keep in mind that vertical spreads have an intrinsic value. This means it is possible to consider them “in the money.” If a vertical spread has an intrinsic value, it can also have an extrinsic value. Unlike maximum intrinsic values that equal the difference between the strikes at expiration, maximum extrinsic…click to read more.

Two Types of Vertical Spreads

Wednesday, December 19, 2007
Filed Under Intermediate Options Trading 

There are two types of vertical spreads – the vertical call and put spread. Each one allows investors to do two things. They can buy it and long the vertical spread. They can also sell it and short the vertical spread. Investors often utilize these measures to take advantage of directional stock plays, which capitalize…click to read more.

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