Evolution, Revolution or Convolution: The Changing Landscape of Exchange Market Structure in North America
March 22, 2018
Concepts

Evolution, Revolution or Convolution: The Changing Landscape of Exchange Market Structure in North America

Bill Gates once said, “The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency.” There is some argument as to which nation created the first exchange....

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5 months ago
Understanding Credit Spreads and How They Differ from Debit Spreads
March 16, 2018
Concepts

Understanding Credit Spreads and How They Differ from Debit Spreads

In a previous posting, “Bull Call and Bear Put Spreads, Pairing Option Strategies with Forecasts” we learned how to implement a debit spread for both calls and puts. This week we will examine another form of vertical spreads: credit spreads and how they can be used. Recall that debit spreads are a limited risk transaction,...

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5 months ago
Flying with Condors
March 15, 2018
Volatility

Flying with Condors

In a recent article we discussed how to get long volatility with the Long Option Straddle. In today’s piece we will discuss another less costly way to buy volatility with the Reverse Iron Condor. Condor strategies are named for the narrow-bodied and broad-winged bird that is primarily found in California. When diagramed, the...

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5 months ago
Reverse Ratio Call Backspread
March 14, 2018
Volatility

Reverse Ratio Call Backspread

In a previous article, “Bull Call and Bear Put Spreads” investors learned how to construct a simple 1:1 vertical spread. This week we will discuss how a ratio spread can be implemented and the risks and benefits of this strategy. A ratio spread is similar to a vertical spread in that it involves the simultaneous purchase...

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5 months ago
Long Call Neutral Calendar Spreads
March 14, 2018
Neutral Outlook

Long Call Neutral Calendar Spreads

In previous submissions we’ve discussed put and call vertical spreads, “Bull Call and Bear Put Spreads”. This week Canadian investors will learn how to construct a calendar spread.  The calendar spread is also known as a time spread or horizontal spread. The calendar spread is typically constructed for a neutral outlook...

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5 months ago
A Quick Guide to Volatility and Options Skew
October 23, 2017
Volatility

A Quick Guide to Volatility and Options Skew

In my last article, entitled Understanding Vega, we examined how Vega measures the changes in option pricing relative to changes in implied volatility. In today’s article I will delve a little deeper into volatility and its impact across the options chain. There are actually two types of volatility that option traders need to...

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10 months ago
Understanding Options Vega
October 19, 2017
Concepts

Understanding Options Vega

Prior to understanding Vega, we need to quickly review option-pricing models. The options pricing models are mathematical formulas that help investors and traders remove the guesswork from determining an options price. The models make some assumptions, primarily that stock prices are random and that only one of the option...

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10 months ago
Going Long Volatility
December 09, 2016
Volatility

Going Long Volatility

No on can accurately predict whether the worst is over or just pausing before stocks make another dramatic move lower. The Long Straddle can be used to take advantage in either outcome. The Long Straddle is composed of a long call option and a long put option. Both options are at the closest At-The-Money-strike (ATM) of the...

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2 years ago
Of Mice and Men and Rolling Options
September 06, 2016
Concepts

Of Mice and Men and Rolling Options

As anyone who has every traded knows, the best laid plans often go awry. Before making any adjustments, the investor needs to dissect what went wrong. Does he or she still hold fast to their original forecast but has simply run out of time, or was the strategy selection itself incorrect? Remember that closing the position in...

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2 years ago
Understanding Put-Call Parity
August 29, 2016
Concepts

Understanding Put-Call Parity

Investors will often hear the term put-call parity without fully comprehending its meaning or how it keeps options prices in line. Put-Call Parity states that for a given underlying price with the same strike prices and the same expiry for both puts and calls, the value of a call at a given price implies a value for the put,...

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2 years ago