A synthetic share of a stock is created by buying and selling stock options to simulate an options play that moves the same way that holding shares in the stock would move without the same amount of capital needed to buy the same amount of shares. A synthetic long stock position is created by buying […]
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A diagonal spread options play is a modified calendar spread that is built with different strike prices. It is opened by entering into a long and short position in two options of the same type at the same time. An option trader can use two call options or two put options but they must have
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This is a guest post from Gavin McMaster @OptiontradinIQ Searching for income has become a challenge. Bonds have been a traditional conservative income stream for decades. Yet, bond yields are now trading at historic lows. This has led some investors and advisors to jump into lower credit “junk” bonds simply to generate any income –
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The jade lizard is an option play that is created by opening a bearish vertical spread using call options and adding a put option sold at a strike price lower than the call spread strike prices. Using one underlying stock with the same expiration date, the jade lizard strategy buys a call option at one
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Call options are in the money when the underlying stock that it is written on has a price higher than a the call option strike price. A call option can be used to call away a stock at the price of the strike with the profits being how much higher the stock was trading at
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Option traders who believe the price of an underlying asset will not change significantly in the near future can sell short combinations of options that have different directional biases and strike prices. A short strangle is an option play designed to bet on a small move in either direction for an underlying stock in a
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Traders who strongly believe the price of an underlying asset will change significantly in the near future but are unsure about the direction of the move can trade combinations of options that have different directional bias and strike prices. A long strangle is an option play designed to bet on a big move in either
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The delta of a stock is always 1.00 because delta is the variance of movement of a stock versus an option contract. The delta of an option is the magnitude of the move in the underlier that the option will capture currently based on the odds of the option expiring in-the-money. Delta quantifies the amount
Options are traded on contract markets and unlike stocks there is someone short and someone long every option at all times. Options are a zero sum market as there is always a winner and a loser in every price move. Someone has to write every contract and there must be a buyer and they both
An investment portfolio generally comprises diverse assets like stocks, ETFs, mutual funds, and bonds. Although it offers numerous advantages, investing and trading in options, an additional asset class, is far riskier than regular equity investments. However, specialized options trading strategies like the covered call strategy can minimize risk and limit losses. Selling covered call options,
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