Introduction to Options
As always, we shall start with a definition. Options are a form of derivative. Options take the form of a contract where one party sells the right in the contract (often called the writer of an option) to the buyer of an option. The buyer pays a premium for the option to the seller and in return the buyer has the right but not the obligation to exercise More...
Managing an open options position
Introduction Some traders prefer to set up an options position and then forget about it until the expiration date. While this might be possible with strategies such as buying calls or puts, or even in the case of More...
Options frontspreads explained
Introduction In a previous article options backspreads, which benefit from volatile trading conditions, were explained in more depth. Today’s discussion is about its counterpart, the options frontspread. A frontspread More...
Credit spreads explained
Anyone who goes on an introductory course in options trading will no doubt become familiar with credit spreads. This remains one of the most popular trading strategies among traders of all levels for a variety of More...
How to use Probability Calculators with Options Trades
Introduction One of the most common mistakes novice options traders make is to only take into account the risk/reward ratio of an options trade without considering the probabilities involved in the specific trade. It More...
Rolling an Options Position
Introduction How should one adjust a naked options position if it gets into trouble? Fig. 8.27(a) below shows a fictitious chart for the share price of company ABC. It used to trade in a fairly narrow range and More...
Options Vega Explained
Options Vega is one of the so-called Greeks of options trading. The others are Delta, Gamma, Rho and Theta. Apart from Delta, Vega is probably the most important of the Greeks for an options trader to have a basic More...
Ratio Options Spreads
A ratio spread is simply an options spread where more options are sold than bought or vice versa. When a ratio spread is set up for a net credit, this gives the trade the rather unique ability to profit from 3 different More...
Options Expiration Date and how it Influences the Price
Introduction To understand how the expiration date of an option influences the price, one first needs to understand how the price of an option is calculated in the first place. While the standard formula to calculate More...
Debit Spreads and Credit Spreads Explained
When a trader buys and sells a combination of options, that trader is said to be putting on what is referred to in options trading jargon as a spread. Debit spreads A debit spread is where the trader has to pay More...