One will commonly hear or read the following “rule of thumb” for options spread trading:When implied volatility is high, sell credit spreads and when implied volatility is low, buy debit spreads.Unfortunately, this is simply not true. The credit spread and its corresponding debit spread at the same strike prices will always have virtually identical returns [...]
“To everything (turn, turn, turn)There is a season (turn, turn, turn)And a time for every purpose, under heavenA time to be born, a time to dieA time to plant, a time to reapA time to kill, a time to healA time to laugh, a time to weep” – The Byrds
Just like the seasons [...]
Many conservative income generation trading strategies depend on the time decay inherent in options pricing. When I establish an iron condor well OTM (out of the money), I am selling option spreads and expecting those spreads to slowly lose value as the underlying stock or index trades within a channel. Other traders may use butterfly [...]
When venturing into the options market, the best way to get the lay of the land is to be acquainted with at least some of the more elementary concepts. These will aid the new investor in successfully executing basic trading strategies.
Two basic terms, the call and the put, are the epicenter of the trading [...]
Option is a legal agreement between buyer and seller to buy or sell security at an agreed price in a certain period of time. It is quite similar to insurance that you pay an amount of money in order that your property is protected by the insurance company. The difference between these two is option [...]
What is a credit spread?
Investopedia says… “An options strategy where a high premium option is sold and a low premium option is bought on the same underlying security.”
OK I know that is very vague, so lets see if I can do better.
It is a trading strategy in which you buy an out of the money [...]
When adjusting the delta on an option spread to manage risk, many option traders do not understand how to use volatility to adjust a position in their favor.
For example, let’s say you are in a butterfly spread and the market trends up and hits your adjustment point. So what kind of adjustment do [...]