It’s Friday once again and that means it’s time for the fourth installment in our ongoing tutorial series on option theory. We have come a long way in the past few weeks and at this point you should have a basic understanding of what differentiates buying a naked option from a trading strategy like a debit spread, which we covered last time. Today we are going talk about a related strategy which is called a credit spread.
It’s Friday and thus it’s time for the third installment in our tutorial series on option theory. In the last two installments we we covered options basics and then did our best to give you a head start on how to interpret option greeks. Today we’re going to jump right into debit spreads and explain why they often may be preferable to trading naked options.
It’s time for the second installment in our option basics tutorial series. Today we are going to cover the option greeks – which is commonly considered a dry topic. Well that was until now – this is Evil Speculator and vee have veeyz to make you understand! So grab a short sword and a bottle of body oil because you’re going to need it down in the dusty arena when I release the four snarling beasts of the derivates (the fifth one is sleeping until further notice). I will try to make basic training as painless as possible as it is crucial that you all understand how the greeks affect the premium of an option throughout its tumultuous existence.
In the context of reintroducing option related strategies here at Evil Speculator I find it important that we establish a baseline of fundamental option related concepts for everyone. Perhaps you’ve never traded options before or maybe you’re just a bit rusty and could use a refresher. So let’s start with the very basics:What Is An Option And What Does It Do?
A call option offers the holder the right (but not the obligation) to buy an underlying asset at a specified price (the strike price), for a certain period of time. If the underlying fails to meet the strike price before the expiration date, the option expires and becomes worthless. A trader may buy a [...]