In these series of Options Trading 101 articles, we analyze on performance of basic Best Equity Options, Forex Options, Futures Options trading for dummies by looking at manipulating the strike prices of various types of Best Equity Options, Forex Options, Futures Options.
We will look at basic well know spreads and work out the tabulation for all to use, be it trading in the market or use in school examinations.
Options Trading 101
We will provide answer to the follow types of best options trading 101 for dummies,
– Box Spreads: Box spreads are useful if price of underlying enters the “boxed in” price of options. Buy a Box and Sell a Box. Irrelevant to America type options.
– Butterfly Spreads : Butterfly spread involved simultaneous long and short options of underlying using options. Construct Butterfly Spread with Call Options and construct Butterfly Spread with Put Options.
– Calendar Spreads: Calendar Spread involved options of similar strike price but different time to expiry
– Diagonal Spreads: Different time to expiry for Bull Spread, Bear Spread and Butterfly Spread.
– Straddles: A form of volatility trade as the trader expects the market to move in beyond current price for Top Straddle. The trader expects the market to remain at current price for Bottom Straddle.
– Strips: Profits with big market movement with better returns if market movement is negative.
– Straps: Profits with big market movement with better returns if market movement is positive.
– Strangles: A form of volatility trade as the trader expects the market to move in excess of certain ranges for Bottom Vertical Combination. The trader expects the market movement to be capped within a certain range for Top Vertical Combination.
Options Trading 101
From these best Equity Options, Forex Options, Futures Options trading for dummies, the more adventurous may derive payoffs for many more exotic strategies. The answers provided does not include adjustment for time effect of money i.e. multiply by factor e-rT . Where T is time to expiry of option and r is risk free interest rate.
Neither brokerage fees nor incidental miscellaneous fees (like your holding cost of underlying asset etc) included in profit table.
It is interesting to note that these income streams involved cash inflow by writing of Equity Options, Forex Options, Futures Options. This appears to be a game between options writers, no?
For the other Options Trading 101 on Equity Options, Forex Options, Futures Options buyers, there is no privilege of having a cash inflow of writing Equity Options, Forex Options, Futures Options, hence, the risk of loss is higher, no?