This strategy has been a widely utilized strategy by most Weekly Options traders. Along with being one of the easier option trading strategies to understand, another reason newer option traders in particular gravitate to this approach is that it can take very little time to manage it while it is on. Another way to put it, is that credit spread sellers don't need to be glued to their computer screens all day watching every tick of the market in order to generate consistent income with this trade.
In addition, the vertical spread should be given importance because it is an essential component of a number of other option spread strategies like the iron condor, the butterfly spread, the double diagonal, and many others. Once new weekly option traders have finished purchasing straight calls and puts, covered calls, and debit spreads, they more often than not use this system once they know their options.
With proper investment, these weekly options trades will have more chances of being successful and the investor would still gain their profit and 'win' even if they don't match the exact price direction and movement. This is the main reason why most traders love to sell these vertical spreads. A trader could be mistaken in predicting the direction of the stock market. If the stock market goes to the reverse direction from what has been anticipated by the trader, this does not affect their monthly return when credit spreads are sold well.
Let's take XYZ stock as an example. Let's say our trader is bearish on this stock. XYZ is trading at a recent high and our trader believes that the stock will not move any higher over the next 30 days. And then the trader trades a bear call spread. This is a call option vertical spread that works well in a neutral to bearish circumstances.
This spread trade wins if our Weekly Options trader's anticipation is correct. That is, when the stock moves down. If the stock does absolutely nothing and just remains trading at it's current level, this trade wins. Now here's a great news! Even if our trader's prediction is wrong, this trade can still win given that the stock doesn't move up way too much. However, if our trader fails to properly handle the situation, the trade can lose the money if the stock market unexpectedly moves up at a faster rate. Therefore, the key is proper management and handling of this kind of situation.
In addition, the vertical spread should be given importance because it is an essential component of a number of other option spread strategies like the iron condor, the butterfly spread, the double diagonal, and many others. Once new weekly option traders have finished purchasing straight calls and puts, covered calls, and debit spreads, they more often than not use this system once they know their options.
With proper investment, these weekly options trades will have more chances of being successful and the investor would still gain their profit and 'win' even if they don't match the exact price direction and movement. This is the main reason why most traders love to sell these vertical spreads. A trader could be mistaken in predicting the direction of the stock market. If the stock market goes to the reverse direction from what has been anticipated by the trader, this does not affect their monthly return when credit spreads are sold well.
Let's take XYZ stock as an example. Let's say our trader is bearish on this stock. XYZ is trading at a recent high and our trader believes that the stock will not move any higher over the next 30 days. And then the trader trades a bear call spread. This is a call option vertical spread that works well in a neutral to bearish circumstances.
This spread trade wins if our Weekly Options trader's anticipation is correct. That is, when the stock moves down. If the stock does absolutely nothing and just remains trading at it's current level, this trade wins. Now here's a great news! Even if our trader's prediction is wrong, this trade can still win given that the stock doesn't move up way too much. However, if our trader fails to properly handle the situation, the trade can lose the money if the stock market unexpectedly moves up at a faster rate. Therefore, the key is proper management and handling of this kind of situation.
About the Author:
If you want more details on credit spreads, then you're welcome to visit the writer's website http://www.weeklyoptionstrading.org - where you'll see all sorts of specific facts about options trading and options.
No comments:
Post a Comment