If options are a new to you or you've been considering entering the options market, take a few minutes to listen to Larry McMillan, "The Option Stategist," as he talks about what he feels is the key to options trading.
Tag: options trading
New take on a Strangle
Today I've invited Bec from MarketMum.com to come and show everyone what she's been using to trade options in this market. I've been reading her for a while, and I was finally able to contact her so she can teach us men a thing or two! So please enjoy the article and feel free to comment with your own thoughts and opinions!
===================================================================
Hi everyone,
A big thanks to Adam for choosing me to be a guest blogger on his site, I feel very honoured! Before we get into the details of my latest strategy, I think I should introduce myself a little better and tell you about myself.
My name is Bec and I'm a stay at home mum from Australia. I was introduced to trading in November 2005 and was hooked from the get go. After some success and many failures, I decided to set up a website for others out there like me, who needed information and education on how trading worked, but more importantly, see how someone else was trading the market, real-time! So I decided to place my trading diary online and thus MarketMum.com was born! I have since written a couple of ebooks and produced a charting video home study, as I was tired of the enormous prices that some so called "experts" charged to learn
this business.
Option Trading – Calendar Spreads & Time Decay
From David Riveria from Delta Neutral Trading comes a lesson on Option Trading...Calender Spreads and Time Decay. Learn more about David and his site Delta Neutral Trading.
====================================================================
When traders speak of putting on calendar spreads, they normally refer to buying the further month options and selling the closer month option. While I can not argue with this, it is not best for all options.
I am going to be general in this article because prices change and I don’t want to cause confusion.
For out of the money options, you might want to consider doing the opposite. Buy the close month and sell the further month. This is because the theta is advantageous to you if you are buying the front month. The further the months are from each other, the more you have an advantage. Also, figure out the price per day of the option. Which option costs more and which is cheaper per day. You can find options that are equal distance away in strike from the futures but one option is 3 times cheaper per day than the other.
For the at the money options, the regular calendar spreads are the way to go. For strike prices that are far out of the money, the reverse calendar spread is better. One reason is the theta advantage. Another is the price per day.
So keep your eyes open for out of the money options and check their price per day and theta and compare them to different months. If you are looking at different months, make sure that the month you are thinking of selling, is the same amount of strike prices away or more from the underlying, as the one you sell. Meaning, if you buy an option that is 5 strikes away from the underlying, the one you sell, should be at least 5 strike prices away from the underlying. This is so if there is a big move, both options will be in the money at roughly the same time.
David Rivera has traded commodities and options for one of the largest cash trading firms in the world. He has written a course on futures options techniques.
You can find out more about this concept at: Delta Neutral Trading
