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25 Cards in this Set

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All pricing models are therefore subject to pricing errors as volatility is stochastic in nature.
All pricing models are therefore subject to pricing errors as volatility is stochastic in nature.
There are various ways to find credit spread strategies, Name One !
A common way is to scan charts to find stocks approaching resistance or support
Upside Breakaway Gaps:
When the market corrects and comes down in price, these gaps can act as support areas
What is a Credit Spread?
Simultaneous sale + purchase of options with the same expiration month, but different strikes.
Downside Breakaway Gaps:
downside gaps can act as resistance areas when prices move up after a downward move
Rule 2: of options
If you do not buy underpriced options or sell overpriced options, you are going to lose eventually
What is options trading about?
You are spot on when you say that options trading is about estimating future volatility
Trading for winning needs A: B: C:
Under/overvalued Options
Sound Game-plan
Discipline to follow gameplan.
Common Gaps:
Prices return to fill common gaps, usually within a few days
Maybe a bull put / Bear call spread on same stock.
Advisable ifthe stock is going to stay in a range
Measuring gaps -runaway gaps occur after a trend is established. Significant because they generally mark the midpoint of a move.
Measuring gaps -runaway gaps occur after a trend is established. Significant because they generally mark the midpoint of a move.
Credit spreads should be entered using options that expire in 45 days or less.
Time Benefit,last 45 days of option sees largest time decay
breakaway gap often occurs at the end of a sideways consolidation pattern
It signals the beginning of a significant price move
For a stock hitting strong support, we would want to check on entering a WHAT TRADE?
Pull Put Spread.
Why are credit spreads advantageous?
They profit 2/3 of the time.
Rule 3: Options
You must also create a good game plan
Measuring gaps can also act as support and resistance areas when price corrections occur in a major trend.
Measuring gaps can also act as support and resistance areas when price corrections occur in a major trend.
If a stock has strong resistance to overcome, WHAT TRADE might be a profitable choice
Bear Call Spread
Exhaustion gap occurs during the final stages of a move.
Exhaustion gap occurs during the final stages of a move.
Rule 1: of Options
ALWAYS buy underpriced and sell overpriced options
When can options be assigned?
Assignment can occur at any time if your options are in-the-money.
Rule C:
Consistency: Try to be consistent
Rule x: Options
Also, be sure to diversify among different sectors over time.
The Last ingredient for SUCESS
The last ingredient to success is ironclad discipline
The advantage to a credit spread is that we have a 67% chance of success.
What is the advantage of a Credit Spread.