Option Spread Trading: A Comprehensive Guide to Strategies and Tactics(Wiley Trading)

A practical guide to unlocking the power of option spreads When dealing with option spreads your looking to purchase one option in conjunction with the sale of another option. If managed properly, these spreads can provide experienced investors with the potential for large returns without undertaking a great deal of risk. Option Spread Trading provides a comprehensive, yet easy-to-understand explanation of option spreads, and shows you how to select the best spread strategy for any given market outlook. Along the way, author Russell Rhoads discusses spread strategies that can be used to profit from a strong up or down directional move in a stock, a stagnant market, or a highly volatile market. He also details how you can harness the leverage of options to create a low-risk position that provides the potential for a big profit. All manner of spreads are covered, from calendar and horizontal spreads to vertical and diagonal spreads Highlights how you can monitor and adjust an existing spread position and provides tips on how to exit a spread trade Includes exercises and examples to test and reinforce your knowledge of the concepts presented Option spread trading has become increasingly popular with active traders and investors. Gain a better understanding of this powerful approach with Option Spread Trading as your guide.

Table of Contents:
Preface xi Acknowledgments xiii CHAPTER 1 Essential Option Knowledge 1 The Option Basics 1 In-At-Out of the Money 5 Intrinsic and Time Value 6 Spread Basics 8 The Greeks 9 Payoff Tables and Diagrams 10 Option Pricing Calculators 12 CHAPTER 2 Spreads Using an Underlying Security 15 Covered Call 15 Covered Call Using LEAPSQR 22 Systematic Covered Call Strategies 25 Cash-Secured Put 26 Systematic Cash-Secured Put 31 Protective Put 32 The Collar 33 CHAPTER 3 Synthetic Positions 37 Put-Call Parity 39 Synthetic Long Positions 40 Synthetic Short Positions 44 Arbitrage in Put-Call Parity 50 Individuals Using Put-Call Parity 52 CHAPTER 4 The Greeks 55 Price-Related Greeks 55 Time-Related Greek 61 Volatility-Related Greek 65 Interest Rate-Related Greek 67 Conclusion 69 CHAPTER 5 Straddles 71 Long Straddle Mechanics 72 Short Straddle 81 CHAPTER 6 Strangles 89 Long Strangle Mechanics 89 Short Strangle Mechanics 98 CHAPTER 7 Bull Spreads 107 Bull Put Spread 107 Bull Call Spread 114 CHAPTER 8 Bear Spreads 121 Bear Call Spread 121 Bear Put Spread 127 CHAPTER 9 Butterfly Spreads 135 Introduction to Butterfly Spreads 136 Long Call Butterfly 136 Long Put Butterfly 139 Iron Butterfly 142 Short Straddle Comparison 146 Short Call Butterfly 149 Short Put Butterfly 152 Reverse Iron Butterfly 154 Reverse Iron Butterfly versus Straddle 156 CHAPTER 10 Condor Spreads 159 Introduction to Condor Spreads 159 Long Call Condor 160 Long Put Condor 163 Iron Condor 166 Iron Condor versus Short Strangle 170 Short Condor Spreads 172 Reverse Iron Condor 176 Reverse Iron Condor versus Long Strangle 179 CHAPTER 11 Ratio Spreads 183 Call Ratio Spread 184 Put Ratio Spread 189 Ratio Spread Comparisons 192 CHAPTER 12 Backspreads 199 Call Backspread 199 Put Backspread 203 Backspread Comparisons 207 CHAPTER 13 The Stock Repair Strategy 213 Doubling Down on a Position 214 The Stock Repair Trade 215 CHAPTER 14 Calendar Spreads 219 Time Value Effect 220 Long Call Calendar 221 Long Put Calendar 224 Combined Calendar Spread 227 CHAPTER 15 Diagonal Spreads 231 Call Diagonal Spread 231 LEAPS Call Diagonal Spread 234 Put Diagonal Spread 237 LEAPS Put Diagonal Spread 239 Double Diagonal Spread 241 CHAPTER 16 Delta Neutral Trading 245 Delta Review 245 Delta-Neutral Positions 246 Gamma 250 Market Maker Trading 251 CHAPTER 17 Executing a Spread Trade 255 Executing a Stock or Option Trade 256 A Single Option Spread 258 A Spread with Two Options 260 A Spread with Multiple Legs 261 Legging into a Spread Trade 265 About the Author 269 Index 271

About the Author :
RUSSELL RHOADS is an instructor for the Options Institute at the Chicago Board Options Exchange. He conducts about ninety classes a year and, in addition, conducts webinars on behalf of the CBOE and a variety of brokerage firms. Rhoads's twenty-year trading career included positions at a variety of trading firms and hedge funds. His background includes trading and analysis, and he is author of Candlestick Charting For Dummies. Rhoads graduated the University of Memphis with a MS in finance and has a master's certificate in financial engineering from the Illinois Institute of Technology.