Tag: Options Trading E-Book

Futures Options Trading Spread Strategy	Description	Reason to Use	When to Use
Buy a call	Strongest bullish option position	Loss limited to premium	Undervalued option with volatility increasing
Sell a put	Neutral bullish option position	Profit limited to debt	Small debit, bullish market
Vertical Bull Calls	Buy call, sell call of higher strike price	Loss limited to debt	Small debit, bullish market
Vertical Bull Puts	Buy put, sell put of higher strike price	Loss limited to price difference	Large credit, bullish market

Futures Options Trading Spread Strategy	Description	Reason to Use	When to Use
Buy a put	Strongest bearish option position	Loss limited to premium	Undervalued option with volatility increasing
Sell a call	Neutral bearish option position	Profit limited to premium	Option overvalued, market flat, bearish
Vertical Bear Calls	Buy at the money put, sell out of the money put	Loss limited to debt	Small debit, bearish market
Vertical Bear Puts	Sell call, buy call of higher strike price	Loss limited to stroke price difference minus credit	Large credit, bearish market

Futures Options Trading Spread Strategy	Description	Reason to Use	When to Use
Strangle	Sell out of the money put and call	Maximum use of time value decay	Trading range market with volatility peaking
Arbitrage	Bull and sell similar simultaneously	Profit limited to debt	Any time credit received
Calendar	Sell near month, buy far month, same strike price	Near month time value decays faster	Small debit, trading range market
Butterfly	Buy at the money call (put), sell 2 out of the money calls (puts), buy out of the money call (put)		Any time credit received
Guts	Sell in the money put and call	Receive large premium	Futures Options have time premium and market in trading range
Box	Buy at the money put, sell out of the money put		Small debit, bearish market
Ratio Call	Buy call, sell calls of higher strike price	Neutral, slightly bullish	Large credit and difference between stroke price of option bought and sold
Conversion	Buy futures, buy at the money put, and sell out of the money call		Any time credit received

Have you ever wondered who sells the futures options that most people buy? These people are known as the option writers/sellers. Their sole objective is to collect the premium paid by the option buyer. Option writing can also be used for hedging purposes and reducing risk. An option writer has the exact opposite to gain as the option buyer. The writer has unlimited risk and a limited profit potential, which is the premium of the option minus commissions. When writing naked futures options your risk is unlimited, without the use of stops. This is why we recommend exiting positions once a market trades through an area you perceived as strong support or resistance. So why would anyone want to write an option? Here are a few reasons:

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