Options are one of the most dynamic investment vehicles available to traders and investors. Option strategies allow the trader to purchase stock options that are close to the stock price (at the money), or they can choose to urges options that are far away from the current stock price (out of the money), or they can buy options that already have intrinsic value (in the money). They can also choose a variety of expiration months. Near-term options are called front month, farther out options are called back month and options with six or more months of life are called LEAPS. Traders can also buy or sell puts and/or calls. They can also by and sell various options simultaneously. This is called an option spread. Some of the more common option spreads are: credit spreads, debit spreads, bullish put spreads, bearish put spreads, bullish calls spreads, bearish calls spreads, calendar spreads, diagonal spreads, iron condor’s, butterflies, straddles, strangles, ratio spreads and back spreads. Ultimately, your opinion of the market and the underlying stock should determine your option strategy. The strategies carry various amounts of risk that traders must be aware of.
Option Trading Strategies
October 13, 2008