Trading Weekly Options + Online Video Course: Pricing Characteristics and Short-Term Trading Strategies (Wiley Trading) by Rhoads Russell

Author:Rhoads, Russell [Rhoads, Russell]
Language: eng
Format: epub, mobi
ISBN: 9781118727386
Publisher: Wiley
Published: 2014-01-22T23:00:00+00:00

It is interesting that even if the stock trades up to 52.50 immediately after the trade is initiated the profit that may be realized is only 1.55 compared to the targeted profit of 2.25. The result could be the stock reversing over the 30-day period and a winning trade turning into a losing trade. Of course the maximum gain also works for the maximum loss. If the stock quickly drops to 45.00 the trade could be exited for a loss of only 1.40.

With short-dated options always available, the wait-and-see game that used to be in place for a bullish spread is not as long as it has to be. The same pricing that was used to create the 30-day examples was used to determine 5-day option premiums. The quotes for those 5-day 45 and 50 strike options appear in Table 12.5.

Table 12.5 Option Quotes Used to Create 5-Day Bull Call and Bull Put Spreads

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