Daily Option Trading Commentary

Solid Earnings, Strong Balance Sheets and Low Interest Rates Will Fuel The Rally - Beware!

Yesterday, the market continued to march higher and it established a new high for the year. Economic news has been light and there is nothing to stand in the way of this rally. Solid earnings, strong balance sheets and low-interest rates will fuel this rally. Every analyst on CNBC is bullish. The VIX has dropped down to two-year lows and confidence is high. The global credit crisis has been completely discounted and traders will need to see concrete evidence of a failure for this market to roll over. Consumer sentiment dropped slightly in February and retail sales were mixed. February's…

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Option Trading Article of the Week

Option Trading - The Problem With Debit Spreads.

Posted by Pete Stolcers on June 5

In today’s option trading blog, I will look at positions that last three months or less and I will describe why I don’t like debit spreads. A debit spread is created by buying a closer to the money option and selling a farther out option. There are a number of issues I have with this strategy. If I’m looking for a big move and I’m considering an out of the money spread, why not just buy the long call/put? Chances are that I’m capping off my profit and receiving very little in return by selling an option that is two…

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Stock Options Question of the Week

Understanding the Risks of Options Trading

Posted by Pete Stolcers on March 5

Question What can I expect to experience as a new trader?

Read the answer to Understanding the Risks of Options Trading

Stock Option Trading Education

Definition of Option Vega: An Option Vega measures the change in the price of a stock option relative to a 1% change in... read more
Married Puts Options Strategy: In a married puts option strategy, the investor owns shares of stock and purchases an equal number... read more
Option Expiration Month & Lifespan of Options: Options have a defined life and option traders select the duration that matches their forecast.... read more
Option Trading for Investment, Speculation and Hedging: Option trading involves investors and speculators buying and selling stock options before they... read more
Index Options and Indices: Index options include baskets of stocks that are combined from group or sector indices. The most... read more
Iron Condors: An iron condor is typically a non-directional option spread where the trader sells an out of the... read more
Parity and Stock Options: Stock Option Parity means that the stock option is trading at its intrinsic value. If a $100 call... read more
Back Month Options Expiration : Back month stock options have more than one month before they expire. They are slightly less... read more
When Options Trade at a Discount: An option that is trading below its intrinsic value is trading at a discount. For instance, a $50... read more
Option Strategy: Options are one of the most dynamic investment vehicles available to traders and investors. Option... read more
Options Listed on Multiple Exchanges: Multi-Listed Stock Optionsare stock that have options that are listed on more than one exchange.... read more
Derivatives & Underlying Stock Option Value: A derivative in the context of finance is a contract whose value is dependent on another... read more
Options in the Money: A call option is where the strike price is lower than the current price of the stock is considered... read more
LEAP Options & Expiration Dates: LEAP stock options have more than six months until expiration. They can have a lifespan of up to... read more
Strategy for Synthetic Call Options: In a Synthetic Call Option, the investor can create a pseudo call position by buying puts that... read more
Options and Time Value: The Time Value of an Option is the amount by which the price of a stock option exceeds its... read more
Diagonal Option Spread: A Diagonal Spread is an option spread where the trader buys a longer-term option and sells a... read more
Option Ask Definition: An option ask is the price an option seller wants to receive for the option. If the option is... read more
Definition of Option Delta: An option delta measures the change in the price of a stock option relative to the change in the... read more
Front Month Option Expiration: The nearest term stock option is referred to as the front month. In a four-week expiration cycle,... read more
Option Bid/Ask Spreads and Liquidity: The Option Bid/Ask Spread is the difference between the stock option bid price and the ask price.... read more
Put Option & Equity Puts: A put option gives the buyer the right, but not the obligation, to sell the underlying stock or... read more
Option Bid Definition: An option bid is the price an option buyer is willing to pay for the option. If the stock option... read more
Option Pricing Models - Black Scholes: The Black-Scholes Option Pricing Model is a financial model thatl was developed in 1973 by Fisher... read more
Intrinsic Value and Option Trading: For in-the-money call options, intrinsic value is the difference between the stock price and the... read more
Definition of Option Theta: An Option Theta measures the rate of decline in a stock option due to the passage of time. Theta... read more
Option Premium Pricing and Intrinsive Values: An option premium is the price of the stock option. It is comprised of intrinsic value and time... read more
Time Decay and Options: Stock options are a wasting asset. From the day you purchase them, their value goes down if the... read more
Definition of Option Gamma: An Option Gamma measures the change in Delta for every one dollar change in the underlying price... read more
Types of Option Spreads: An option spread is created when a trader simultaneously buys and sells options with different... read more
Option Exercise Price: An option exercise price is the price level where the option starts to take on intrinsic value. It... read more
10 up Option Market Definition: Ten-up Option Market - Market Makers provide liquidity and they are members of the exchange. They... read more
Accelerated Time Decay: Accelerated Time Decay refers to options that have less than a month to maturity decay at an... read more
Out of the Money (OTM) Options: A call option with a strike price that is much greater than the current stock price is considered... read more
Time Premiums, Value and Volatility: A time premium is the amount by which the price of a stock option exceeds its intrinsic value. If... read more
Call Options & Naked Call Writing: A call option gives the buyer the right, but not the obligation, to buy the underlying stock or... read more
Butterfly Option Spreads: In a Butterfly Spreadstrategy, all of the expiration months are the same. A trader buys a call... read more
stock option contract: An option contract gives the buyer of the option the right, but not the obligation to buy (call)... read more
Synthetic Put Position: Option traders often construct synthetic put positions to hedge their short stock positions. When... read more
Four-way Options Spreads: A 4-Way Option Spread is the same as an iron condor spread. The option strategy sells an out of... read more
Options At the Money: When the stock price is the same as the strike price an option is considered at the money. The... read more
Strike or Exercise Price on Call Options: The strike price (exercise price) is the level at which the buyer of a call option can exercise... read more

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