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When vertical spreads are mentioned, they quite often come with monickers 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…click to read more.

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 as was used in the selection and management processes. Looking at the closing out of a vertical call spread, we find there are…click to read more.

The determination of pricing as described above works in most cases but please be aware that this assumes that the implied volatility in both the 35 and 40 calls is the same. Most of the time, these two options will have a slightly different implied volatility. This intra-month difference in implied volatility values through different…click to read more.

Spread Prices

Sunday, December 9, 2007
Filed Under Intermediate Options Trading 

During the life of a vertical call spread, the spread will trade between its minimum and maximum values (between 0 and the difference between the two strikes). In the case of a vertical call spread, the spread will trade closer to zero when the stock trades closer to or lower than the lower strike price.…click to read more.

We have demonstrated that vertical spreads have intrinsic value, and that we can roughly determine their value by comparing stock price to strike prices. There is another relationship that can help investors determine value. That is the relationship that exists between corresponding vertical spreads. When we use the term corresponding we mean the same month,…click to read more.

Any spread that has intrinsic value is considered in-the-money. How can you identify the value of a vertical call spread or a vertical put spread? Compare the stock price to the strike prices. Look at any vertical call spread. If the stock price is above the lower strike of the spread, then the spread is…click to read more.

In looking at vertical spreads, an investor must take note of the fact that vertical spreads have an intrinsic value. This means that a vertical spread can be considered to be “in-the-money”. If a vertical spread has an intrinsic value then it can also have an extrinsic value. The maximum extrinsic value in a spread…click to read more.

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