Stocks & Commodities V. 29:8 (55): Explore Your Options by Tom Gentile

Stocks & Commodities V. 29:8 (55): Explore Your Options by Tom Gentile
Item# 132EYOPDF
$2.95
Availability: In Stock

Product Description

Explore Your Options by Tom Gentile

BULL AT A DISCOUNT?

Iíve noticed some bull call spreads trade for less than intrinsic value prior to expiration. Why is that, since it would seem like a good opportunity to buy at a discount compared to an outright call?

What youíre seeing is a function of larger extrinsic or time value in the short, higher strike call compared to the deeper long call. This causes some verticals, in particular those with one strike deep-in-the-money and the other slightly in- or out-of-the-money, appear to be trading at a discount to its intrinsic worth at expiration.

This relationship between the two makes profits harder to come by relative to an outright deep long call position as shares move up. But as expiration grows closer or if shares rally swiftly enough, the reduction in the extrinsic value of your short call will result in the spread expanding toward its maximum profit potential.

As with any spread, verticals can represent a stronger opportunity relative to an outright position. However, the determination of this value is a combination of implied and statistical volatility, market conditions, and a traderís expectations.

At Optionetics, we would favor a vertical over a long call due to its reduction risks associated with the greeks. But we also stress the value in performing this kind of due diligence when a trader considers a position to reach an informed decision.




FOR THOSE ORDERING ARTICLES SEPARATELY:
*Note: $2.95-$5.95 Articles are in PDF format only. No hard copy of the article(s) will be delivered. During checkout, click the "Download Now" button to immediately receive your article(s) purchase. STOCKS & COMMODITIES magazine is delivered via mail. After paying for your subscription at store.traders.com users can view the S&C Digital Edition in the subscriber's section on Traders.com.




Take Control of Your Trading.
Professional Traders' Starter Kit
All these items shown below only $299.99!
  • 5-year subscription to Technical Analysis of STOCKS & COMMODITIES, The Traders' magazine. (Shipping outside the US is extra. Washington state addresses require sales tax based on your locale.)
  • 5 year access to S&C Archive
  • 5 year access to S&C Digital Edition
  • 5-year subscription to Traders.com Advantage.
  • 5-year subscription to Working Money.
  • Free book selection.
  • Click Here to Order