All option values consist of two components. time value and intrinsic value. Intrinsic value is the part in-the-money of the premium for the option and the left upper part represents a time value. Options losing two-thirds of their time during the last one-third of their life. As an option traders can take advantage of this decay year with the sale of credit spreads.
Options lost most teeth time closer moving end. Therefore, it is reasonable to seller options with just a few weeks left in the end. Sale of "naked" Options involves risk of loss is unlimited, but credit spreads will cap your maximum loss in the difference between the strike price less the premium for the option. A commercial credit means we're spreading a sale and buy another option at a lower strike price (in the case of a put spread, the highest for a call spread). Put credit spread is a daily strategy and a spread credit call is a bearish strategy. The great advantage of credit spreads, is that there must be 100% right. We can have a margin for error.
Suppose we are somewhat bearish on today's market. The KATASKOPOS trading at 129.39, we could sell credit call February spread. Collection strike prices will depend on how a margin of error you want, how you're bearish and how I would like to make a profit. We could sell the 18 February $ 134 calls for $ 0.37 and buy the 18 February, $ 136 asks $ 0.00 will give us a clean credit $ 0.23, $ 23 is the maximum win per contract. Our maximum loss would be $ 177 per contract (13600-13400-23). This is a 12,99% return on capital risk 4 weeks. The margin required for this trade by most brokers is equal to the maximum loss.
At maturity, SPY could still finish at $ 134.23, before we start to experience loss and $ 136.23 before we hit our maximum loss. What is a margin of 4.50% and 6% for 2006.
Note that with this commercial strategy, looking to minor monthly profits while trying to avoid significant losses. As well as the maximum loss 7.7 times greater than the maximum profit, you will need to have 7.7 WINS 1 loss trades for each trade with these options trading strategy. This is not a large proportion. For this reason it is especially important to set stop loss. Each person should select their own stop loss levels and trade rules based on their risk tolerance. Some options sellers can use a rule 200%, means that if you sold spread price increases by 200%, interrupted by. In this example, it would be if the spread increased by $ 0.23 to $ 0,69. The investor should be stopped by with a loss of $ 46 per spread, which is much less than the maximum potential loss of $ 177. Using this level loss stop you can reduce your winning trade ratio from 7.7 2. You can use these options trading tutorial as a great way to develop your trading strategies.
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