Uncovered Options Trading System

Options Autotrading
2017-2020 - 97 winners and only 4 losers

Glossary


Vertical Spread

Vertical Spread is a trading strategy that involves the simultaneous purchase and sale of options of the same class and expiration date but different strike prices, including bull vertical spreads, bear vertical spreads, back spreads, and front spreads. There are other types of spread trading strategies, such as Horizontal Spread and Diagonal Spread.

See Also:

Spread: Spread (Also referred to as Straddle) is the purchase of one futures delivery month against the sale of another futures delivery month of the same commodity; the purchase of one delivery month of one commodity against the sale of that same delivery month of a different commodity; or the purchase of one commodity in one market against the sale of the commodity in another market, to take advantage of a profit from a change in price relationships. The term spread is also used to refer to the difference between the price of a futures month and the price of another month of the same commodity. A spread can also apply to options.

A spread is the simultaneous purchase and sale of the same or similar commodity, in different or the same contract months. Spread trading is usually considered to be a lower risk strategy than an outright long or short futures position, and therefore margin requirements are usually less.

Not only can spreads be utilized in futures markets, but options provide even more opportunities for successful spread trading. With so many variables including strike prices, trading months, and different markets available, the permutations and combinations of option strategies are tremendous.

Some of the advantages of spreads are:
 - require smaller margin deposits;
 - lower risk
 - seasonal patterns exist among spread relationships.

Back Spread: Back Spread is a delta-neutral ratio spread in which more options are bought than sold. A back spread will be profitable if volatility increases. See Delta.

Bear: Bear is one who expects a decline in prices. The Bear trader is is the opposite of a Bull trader. A Bear (bearish trader) expect to profit on declining price. A news item is considered bearish if it is expected to result in lower prices.

Bull: Bull is a trader who expects a rise in prices. Bull trader is the opposite of bear. Bullish trader expects to profit on rising price. A news item is considered bullish if it is expected to result in higher prices.

Diagonal Spread: Diagonal Spread is a trading strategy that involves a spread between two call options or two put options with different strike prices and different expiration dates. There are other trading strategies, such as Horizontal Spread and Vertical Spread.

Expiration Date: Expiration Date is the last date on which an option may be exercised. This is the date on which an option contract automatically expires; the last day an option may be exercised. It is not uncommon for an option to expire on a specified date during the month prior to the delivery month for the underlying futures contracts.

On an option exchange, every 3rd Friday of the month is expiration day for monthly options. A number of option series expire on this day.

At expiration all call options with a higher strike price than the expiration price of the underlying stock/currency or index will be worthless. All series with a lower strike price will have value and will be exercised. In the case of put options the opposite applies.

For all holders of call options it will be optimal when the value of the positions at expiration is as low as possible.

Options expiration date is the most important factor in calculating an options price:



Front Spread: Front Spread is a delta-neutral ratio spread in which more options are sold than bought. Also called ratio vertical spread. A front spread will increase in value if volatility decreases.

Horizontal Spread: Horizontal Spread (also called Time Spread or Calendar Spread) is an options trading strategy that involvs the simultaneous purchase and sale of options of the same class and strike prices but different expiration dates. See Diagonal Spread, Vertical Spread.

Option: Option is a contract that gives the buyer the right, but not the obligation, to buy or sell a specified quantity of a commodity or other instrument at a specific price within a specified period of time, regardless of the market price of that instrument. There are two types of options: Put Options and Call Options.

Strike Price: Strike Price (Exercise Price) is the price, specified in the option contract, at which the underlying futures contract, security, or commodity will move from seller to buyer. Strike Price is the price at which the buyer of a call (put) option may choose to exercise his right to purchase (sell) the underlying futures contract.


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DISCLAIMER: THIS INFORMATION IS INTENDED FOR EDUCATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE ANY FINANCIAL ADVICE. RISK IS INVOLVED IN ALL STYLES OF MONEY MANAGEMENT. Uncovered options trading involves greater risk than stock trading. You absolutely must make your own decisions before acting on any information obtained from this Website.

The return results represented on the web site are based on the premium received for the selling options short and do not reflect margin. It is recommended to contact your broker about margin requirements on uncovered options trading before using any information on this web site. Use our "Trade Calculator" to recalculate our past performance in relation to the margin requirements, brokerage commissions and other trading related expenses. Past performance is not indicative of future results.

Risk Statement:

Naked options trading is very risky - many people lose money trading them. It is recommended contacting your broker or investment professional to find out about trading risk and margin requirements before getting involved into trading uncovered options.

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