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Option Spread Trading: A Comprehensive Guide to Strategies and Tactics

ISBN: 978-0-470-61898-1
273 pages
January 2011
Option Spread Trading: A Comprehensive Guide to Strategies and Tactics (0470618981) cover image
A practical guide to unlocking the power of option spreads

When dealing with option spreads your looking to purchase one option in conjunction with the sale of another option. If managed properly, these spreads can provide experienced investors with the potential for large returns without undertaking a great deal of risk.

Option Spread Trading provides a comprehensive, yet easy-to-understand explanation of option spreads, and shows you how to select the best spread strategy for any given market outlook. Along the way, author Russell Rhoads discusses spread strategies that can be used to profit from a strong up or down directional move in a stock, a stagnant market, or a highly volatile market. He also details how you can harness the leverage of options to create a low-risk position that provides the potential for a big profit.

  • All manner of spreads are covered, from calendar and horizontal spreads to vertical and diagonal spreads
  • Highlights how you can monitor and adjust an existing spread position and provides tips on how to exit a spread trade
  • Includes exercises and examples to test and reinforce your knowledge of the concepts presented

Option spread trading has become increasingly popular with active traders and investors. Gain a better understanding of this powerful approach with Option Spread Trading as your guide.

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Preface.

Acknowledgments.

CHAPTER 1 Essential Option Knowledge.

The Option Basics.

In-At-Out of the Money.

Intrinsic and Time Value.

Spread Basics.

The Greeks.

Payoff Tables and Diagrams.

Option Pricing Calculators

CHAPTER 2 Spreads Using an Underlying Security.

Covered Call.

Covered Call Using LEAPS®.

Systematic Covered Call Strategies.

Cash-Secured Put.

Systematic Cash-Secured Put.

Protective Put.

The Collar.

CHAPTER 3 Synthetic Positions.

Put-Call Parity.

Synthetic Long Positions.

Synthetic Short Positions.

Arbitrage in Put-Call Parity.

Individuals Using Put-Call Parity.

CHAPTER 4 The Greeks.

Price-Related Greeks.

Time-Related Greek.

Volatility-Related Greek.

Interest Rate-Related Greek.

Conclusion.

CHAPTER 5 Straddles.

Long Straddle Mechanics.

Short Straddle.

CHAPTER 6 Strangles.

Long Strangle Mechanics.

Short Strangle Mechanics.

CHAPTER 7 Bull Spreads.

Bull Put Spread.

Bull Call Spread.

CHAPTER 8 Bear Spreads.

Bear Call Spread

Bear Put Spread.

CHAPTER 9 Butterfly Spreads.

Introduction to Butterfly Spreads.

Long Call Butterfly.

Long Put Butterfly.

Iron Butterfly.

Short Straddle Comparison.

Short Call Butterfly.

Short Put Butterfly.

Reverse Iron Butterfly.

Reverse Iron Butterfly versus Straddle.

CHAPTER 10 Condor Spreads.

Introduction to Condor Spreads.

Long Call Condor.

Long Put Condor.

Iron Condor.

Iron Condor versus Short Strangle.

Short Condor Spreads.

Reverse Iron Condor.

Reverse Iron Condor vs. Long Strangle.

CHAPTER 11 Ratio Spreads.

Call Ratio Spread.

Put Ratio Spread.

Ratio Spread Comparisons.

CHAPTER 12 Backspreads.

Call Backspread.

Put Backspread.

Backspread Comparisons.

CHAPTER 13 The Stock Repair Strategy.

Doubling Down on a Position.

The Stock Repair Trade.

CHAPTER 14 Calendar Spreads.

Time Value Effect.

Long Call Calendar.

Long Put Calendar.

Combined Calendar Spread.

CHAPTER 15 Diagonal Spreads.

Call Diagonal Spread.

LEAPS Call Diagonal Spread.

Put Diagonal Spread.

LEAPS Put Diagonal Spread.

Double Diagonal Spread.

CHAPTER 16 Delta Neutral Trading.

Delta Review.

Delta-Neutral Positions.

Gamma.

Market Maker Trading.

CHAPTER 17 Executing a Spread Trade.

Executing a Stock or Option Trade.

A Single Option Spread.

A Spread with Two Options.

A Spread with Multiple Legs.

Legging into a Spread Trade.

About the Author.

Index.

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RUSSELL RHOADS is an instructor for the Options Institute at the Chicago Board Options Exchange. He conducts about ninety classes a year and, in addition, conducts webinars on behalf of the CBOE and a variety of brokerage firms. Rhoads's twenty-year trading career included positions at a variety of trading firms and hedge funds. His background includes trading and analysis, and he is author of Candlestick Charting For Dummies. Rhoads graduated the University of Memphis with a MS in finance and has a master's certificate in financial engineering from the Illinois Institute of Technology.
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