subject: Option Strategies Chart - The Core Foundation to All Other Option Strategies [print this page] Option Strategies Chart Option Strategies Chart
There are a number of various option spread strategies that option non directional investors can utilize to generate income from the stock market without having to 'predict' market direction.
For example there is the butterfly spread, the iron condor, the diagonal (an/or the double diagonal), and the calendar spread, the double calendar spread - and, the vertical spread, which is sometimes also referred to as the 'credit spread'.
In actuality, the vertical spread can be discovered inside many of the previously talked about strategies. It is a core foundational trade to each of their makeup. Take for instance the iron condor. This trade is constructed from two separate verticals - a put credit spread and a call credit spread - each positioned above and below where the underlying stock is currently trading at.
It is also a basic building block of the butterfly. The top half of the butterfly is actually just a vertical spread - as is the bottom half. An iron butterfly trade is built from a put credit spread and a call credit spread. Option Strategies Chart
These trades can be used with both put and call options. A bearish vertical is called a bear call spread, which is placed using calls above where the underlying vehicle is currently trading at. A bullish play is called a bull put spread, which is a vertical spread using puts placed below where the stock or index being used is trading at.
Following is an illustration of a bull put vertical spread...
Sell 1 ABC Stock 75 Put Option
Buy 1 ABC Stock 70 Put Option
Again, this trade is a bullish position - where the opinion of the option seller is that ABC will be moving higher over the shorter term, or staying put in it's general area on the price chart.
This position is called a bull put spread due to the fact that even though the position is created using put options, it is being placed in such a way that generates a profit if and when the stock being used moves bullishly.
If the trader pacing this trade is correct in his prediction and ABC does in fact rise or stay where it is trading at, this position will be a winning trade and the premium that was collected when the trade was first put on will remain in the traders account as profit. Option Strategies Chart
Option Strategies Chart - The Core Foundation to All Other Option Strategies
