Trading Strategies Profit Making Techniques For Stock_10

Ratio Spreads 241 If you have a bullish ratio call spread, then holding the position makes sense. The UI price has moved lower, but you are now looking for the mar-ket to move in your direction. Therefore, your position should begin to show a profit if your market opinion is correct. On the other hand, you will not want to hold the position if you have a bearish ratio spread. If you initiated a bearish ratio spread, then you should consider liqui-dating the position. There is never any reason to hold a bearish position if you are bullish. The most aggressive approach would be to liquidate the short options or buy more calls. This would shift the position to a net long call position. Hopefully, you are adjusting the position because of newfound bullishness, not because you lost money due to a poor adjustment to the ratio because of the higher prices. If you are adjusting because you are now bullish, you might have a slight profit in the trade because of the decay in the time premium. Thus, you will be shifting to a long call position with a profit that, in effect, raises the break-even point. One problem with this tactic is that you likely initiated the original ratio spread with little time left before expiration. This means that you will be buying time premium when time is working significantly against you. If you expect prices to remain about the same, you could: 1. Hold the position if profitable; or 2. Roll down if unprofitable. If the position is profitable, you are likely holding a bearish ratio spread, and holding the position can make sense. Holding the position will mainly accomplish the goal of capturing the time premium on the short options. If the position is unprofitable, you are likely holding a bullish ratio spread, and rolling down to lower strike prices might help recover some of the losses. This is basically a tactic to try to maximize the time premium that you capture. Thus, the short options should be at-the-money, whereas the long options should be in-the-money. If you are bearish, you could: 1. Hold the position if initiated at a credit; 2. Roll down; or 3. Liquidate the long calls or sell more calls. If you are holding a bearish ratio spread, then holding the position makes sense. An expectation of lower prices will lead to greater profits. No matter what market bias you have, consider holding the position whenever you have initiated the trade for a credit. 242 OPTION STRATEGIES If the position is unprofitable, you are likely holding a bullish ratio spread, and rolling down to lower strike prices might help recover some of the losses. This is basically a tactic to try to maximize the time premium that you capture. Thus, the short options should be at-the-money, whereas the long options should be in-the-money. Amoreaggressiveapproachistosell more calls or liquidate some long calls. The ultimate version of this tactic is to liquidate all the long calls. You have to be very confident of your bearish prognostication because of the greater risk of a naked short call position. However, the potential reward is also much higher. Ratio Put Spreads If you are bullish, you could: 1. Hold the position if initiated at a credit; or 2. Liquidate the long puts or sell more puts. If you were able to initiate the ratio put spread at a credit, then you can hold the position. You have no up-side risk in a ratio put spread if initiated for a credit. As a result, you should continue to hold the po-sition. If you have a bullish ratio put spread, then holding the position will give you additional time for prices to move back to the maximum profit point. The most aggressive choice is to liquidate the long puts or sell more short puts. This will bring large profits if prices move higher, but it will have very large losses if prices change direction and fall. You must have a firm opinion about the expected rally. If you expect prices to remain about the same, you could: 1. Hold the position if profitable; or 2. Roll down if unprofitable. If the position is profitable, you are likely holding a bearish ratio spread, and holding the position can make sense. Holding the position will mainly accomplish the goal of capturing the time premium on the short options. If the position is unprofitable, you are likely holding a bullish ratio spread. Rolling down to lower strike prices might help recover some of the losses. This is basically a tactic to try to maximize the time premium that you capture. Thus, the short options should be at-the-money, whereas the long options should be in-the-money. Ratio Spreads 243 If you are bearish, you could: 1. Hold the position if profitable; 2. Liquidate the position; 3. Buy more puts or liquidate the short puts; or 4. Roll down if unprofitable. If the position is profitable, you are likely holding a bearish ratio spread, and holding the position can make sense. Holding the position will mainly accomplish the goal of capturing the time premium on the short options. If you are holding a bullish position, then the most flexible approach is to liquidate the position. You will then be able to select from a larger variety of bearish positions to take. A more aggressive approach would be to buy more puts or liquidate some of your short puts. The ultimate version of this tactic would be to liquidate all the short puts. You would have to be very confident of your bearish prognostication because of the somewhat greater risk of a long put position. However, the potential reward is also much higher. If the position is unprofitable, you are likely holding a bullish ratio spread, and rolling down to lower strike prices might help recover some of the losses. This is basically a tactic to try to maximize the time premium that you capture. Thus, the short options should be at-the-money, whereas the long options should be in-the-money. C H A P T E R 20 Ratio Calendar Spreads Strategy Long Straddles Price Implied Action Volatility Either Increasing Way a Helps Lot Time Decay Gamma Hurts Helps Profit Potential Unlimited Risk Limited STRATEGY The ratio calendar spread is a blending of ratio spreads and calendar spreads. It consists of selling nearby options and buying fewer of a far-ther option. For example, you could sell 4 of the July 40 calls and buy 2 of the October 40 calls. Theamountofbullishnessorbearishnesscanbecontrolledbytheratio of the long and short options. A neutral spread can be constructed as a delta-neutral strategy and then kept neutral throughout the time period. Alternately, positions can be engineered that have a bullish or bearish bias. Ratio calendar spreads are good low-risk investments that can give a steady return. They capture the higher time decay of the nearby option but maintain the hedge of the far option. In addition, ratio calendar spreads have the potential for large gains after the nearby option expires because of the still-existing long-term option (see Chapter 18 and Chapter 19). 245 ... - tailieumienphi.vn