Trading strategies involving options and futures for dummies


If the premiums of the options sold is higher than the premiums of the options purchased, then a net credit is received when entering the spread. Retrieved from " https: They are called diagonal spreads because they are a combination of vertical and horizontal option trading on stocks and commodities. This page was last edited on 31 Augustat April Learn how and when to remove this template message.

For this reason, a box is sometimes considered a "pure interest rate trading strategies involving options and futures for dummies because buying one basically constitutes lending some money to the counterparty until exercise. Any spread that is constructed using calls can be referred to as a call spread, while a put spread is constructed using put options. When more options are written than purchased, it is a ratio spread. Many options strategies are built around spreads and combinations of spreads. The net volatility of an option spread trade is the volatility level such that the theoretical value of the spread trade is equal to the spread's market price.

Views Read Edit View history. If a spread is designed to profit from a rise in the price of the underlying security, it is a bull spread. For the American football offensive scheme, see Spread offense. In practice, it can be considered the implied volatility of the option spread.

A spread position is entered by buying and selling equal number of options of the same class on the same underlying security but with different strike prices or expiration dates. The three main classes trading strategies involving options and futures for dummies spreads are the horizontal spread, the vertical spread and the diagonal spread. For this reason, a box is sometimes considered a "pure interest rate play" because buying one basically constitutes lending some money to the counterparty until exercise.

The net volatility of an option spread trade is the volatility level such that the theoretical value of the spread trade is equal to the spread's market price. If the premiums of the options sold is higher than the premiums of the options purchased, then a net credit trading strategies involving options and futures for dummies received when entering the spread. For example, a bull put spread is basically a bull spread that is also a credit spread while the iron butterfly can be broken down into a combination of a bull put spread and a bear call spread.

Options finance Derivatives finance. When more options are purchased than written, it is a backspread. For example, a bull put spread is basically a bull spread that is also a credit spread while the iron butterfly can be broken down into a combination of a bull put spread and a bear call spread. Vertical spreadsor money spreads, are spreads involving options of the same underlying security, same expiration month, but at different strike prices.

Articles needing additional references from April All articles needing additional references Articles with Curlie links. By using this site, you agree to the Terms of Use and Privacy Policy. Options finance Derivatives finance. Many options strategies are built around spreads and combinations of spreads.