VIDEO: 4:46 MINUTES
This session continues to define various trade strategies:
This session continues to define various trade strategies:
- Horizontal Spreads (aka Calendar Spreads)
Horizontal Spreads (aka Calendar Spreads)
- Type: Debit
- We BUY the options (pay the premiums)
- Implied Volatility: Low – 30% or less
- Direction Bias: Neutral or Directional (Based on construction)
- Volatility Bias: Conservative Long Volatility (CLV)
- Risk/Reward Profile:
Max Risk: Limited to total debit (premium paid for long unit minus credit received for short unit)
Max Profit: Limited and Variable (Based on changes in volatility and underlying price at time of expiration) - Greek Values:
- Position Delta: Neutral or Direction (Based on construction)
- Position Vega: Positive (profit from rise in volatility)
- Position Theta: Positive
- Position Delta: Neutral or Direction (Based on construction)
- Position construction: Non-Directional Bias:
ANCHOR: Buy 1 ATM Call or Put expiring in more than 90 days while in a supply area
OFFSET: Sell the same expiring in less than 60 days when in the middle of an expected range- Calls: when current price is slightly below the middle of the range
- Puts: when current price is slightly above the middle of the range
- Calls: when current price is slightly below the middle of the range
- Position construction: With Directional Bias:
ANCHOR: Buy 1 ATM Call (long bias) or a Put (short bias) expiring in more than 90 days - OFFSET: Sell the same expiring in less than 60 days
- Strike Location: Long Bias - Top of the range, Short Bias – Bottom of the range
- Best Case Market Condition: Highest profit potential is when the underlying expires at or close to the strike price. Prefer the movement in price, if any, to be slow and steady. Position will generally profit from a rise in volatility but we do not want the rise to be strictly short term as happens with binary events. We want the overall volatility so the long unit is effect as well as the short unit.
