VIDEO: 6:16 MINUTES
This session continues to define various trade strategies:
This session continues to define various trade strategies:
- Vertical Debit Spreads
- Bull Call Spread
- Bear Put Spread
Bull Call Spread (vertical debit)
Bear Put Spread (vertical debit)
- Type: Debit
- We BUY the options (pay the premiums)
- Implied Volatility: Med/Low – 40% or less
- Direction Bias: Bullish (3/1 reward to risk trades only)
- 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 (dollar difference between long and short strikes less total debit) - Greek Values:
- Position Delta: +25 minimum
- Position Vega: Positive (profit from rise in volatility)
- Position Theta: Negative
- Position Delta: +25 minimum
- Position construction:
ANCHOR: Buy 1 ATM Call expiring in more than 90 days while in a demand area
OFFSET: Sell 1 ATM Call same expiration with strike price near supply top of range or at predefined profit exit point - Best Case Market Condition: Used as a directional strategy only. It is designed to be a hedge against a fall in volatility rather than a way to profit from its rise. Allows the drastic reduction of the volatility risk and Theta burn while providing the ability to capture a good part of a directional move with limited liability and capital outlay. Need to stay with candidate scoring high on the Trade Quality score sheet and carry a 3/1 reward to risk ratio
Bear Put Spread (vertical debit)
- Type: Debit
- We BUY the options (pay the premiums)
- Implied Volatility: Med/Low – 40% or less
- Direction Bias: Bearish (3/1 reward to risk trades only)
- 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 (dollar difference between long and short strikes less total debit) - Greek Values:
- Position Delta: -25 minimum
- Position Vega: Positive (profit may from rise in volatility)
- Position Theta: Negative/Flat
- Position Delta: -25 minimum
- Position construction:
ANCHOR: Buy 1 ATM Put expiring in more than 90 days while in a supply area
OFFSET: Sell 1 ATM Put same expiration with strike price near demand bottom of range or at predefined profit exit point