Option Spread Trading: A Comprehensive Guide to Strategies and Tactics

289 Pages·2011·2.82 MB·English

by  Rhoads

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Option Spread
Trading
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Option Spread
Trading
A Comprehensive Guide to
Strategies and Tactics
RUSSELL RHOADS, CFA
JohnWiley&Sons,Inc.
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Copyright(cid:1)C 2011byRussellRhoads.Allrightsreserved.
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LibraryofCongressCataloging-in-PublicationData:
Rhoads,Russell,1967–
Optionspreadtrading:acomprehensiveguidetostrategiesandtactics/RussellRhoads.
p.cm.–(Wileytradingseries)
Includesindex.
ISBN978-0-470-61898-1(hardback);ISBN978-0-470-94432-5(ebk);
ISBN978-0-470-94431-8(ebk);ISBN978-1-118-018934(ebk)
1.Options(Finance) I.Title.
HG6024.A3R522011
332.63(cid:2)2283–dc22
2010032261
PrintedintheUnitedStatesofAmerica
10 9 8 7 6 5 4 3 2 1
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Thisworkisdedicatedtothethreemostimportantpeopleinmy
life—mywifeMerribethAnnRhoadsanddaughtersMargaretSusan
andEmersonArlene.Youaremypartner,firstfriend,andlittlepal.
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Contents
Preface xi
Acknowledgments xiii
CHAPTER 1 Essential Option Knowledge 1
TheOptionBasics 1
In-At-OutoftheMoney 5
IntrinsicandTimeValue 6
SpreadBasics 8
TheGreeks 9
PayoffTablesandDiagrams 10
OptionPricingCalculators 12
CHAPTER 2 Spreads Using an Underlying Security 15
CoveredCall 15
CoveredCallUsingLEAPS(cid:1)R 22
SystematicCoveredCallStrategies 25
Cash-SecuredPut 26
SystematicCash-SecuredPut 31
ProtectivePut 32
TheCollar 33
CHAPTER 3 Synthetic Positions 37
Put-CallParity 39
SyntheticLongPositions 40
SyntheticShortPositions 44
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viii CONTENTS
ArbitrageinPut-CallParity 50
IndividualsUsingPut-CallParity 52
CHAPTER 4 The Greeks 55
Price-RelatedGreeks 55
Time-RelatedGreek 61
Volatility-RelatedGreek 65
InterestRate-RelatedGreek 67
Conclusion 69
CHAPTER 5 Straddles 71
LongStraddleMechanics 72
ShortStraddle 81
CHAPTER 6 Strangles 89
LongStrangleMechanics 89
ShortStrangleMechanics 98
CHAPTER 7 Bull Spreads 107
BullPutSpread 107
BullCallSpread 114
CHAPTER 8 Bear Spreads 121
BearCallSpread 121
BearPutSpread 127
CHAPTER 9 Butterfly Spreads 135
IntroductiontoButterflySpreads 136
LongCallButterfly 136
LongPutButterfly 139
IronButterfly 142
ShortStraddleComparison 146
ShortCallButterfly 149