option spread trading

Bid-ask spread narrow or wider question?

Question by pps p: Bid-ask spread narrow or wider question?
Respected Traders,

I have a question regarding in judging the spread is wide or narrow.
I heard, you should judge whether the spread is wide or narrow relative to the price of stock.
e.g;
500$ stock having 0.50$ spread is still narrow because of high price of stock
50$ stock having 0.50$ spread is considered wider because of low price of stock

I cannot undertstand how to evaluate the average spread (Acceptable spread) for stock with different prices.
Can anyone please teach me in simple way of how to evaluate the average spread?
e.g: As a trader,what would be average spread for a stock price 10$ is considered safe by you?How would you judge this?Please help me out in this issue.

If you Know by any other ways of evaluating the average spread for each stock,I kindly request you guys to teach me in simple way with clear explanation.Please explain to me as you could explain to 5 year old kid.

Question #2:

Similarly For Options Trading,
what is the maximum spread you will accept if you choose ITM Options?
What is the Maximum spread you will accept if you choose ATM options?
What is the Maximum Spread you will accept if you choose OTM Options?

Similraly,How would would you come to conclusion for option contract,whether the spread is wider or Narrow?
Please explain to me in simple and clearly.
Thank you.

Best answer:

Answer by rexx0046
you are asking too many things at once. you could probably easily find all your answers on the internet if you made some effort.

generally you want to trade something with high volume since the higher volume is how you get lower spreads. and you are correct in that a lower spread means a lower percentage. you want a lower spread when you buy and also when you sell.

as far as what maximum spread you should accept that will depend on how much profit you are likely to make on your transaction and will depend on your strategy and tactics. this is true regardless of what you are trading. the five year olds that i know would not be able to understand and do this successfully.

hope this helps

What do you think? Answer below!

Learn Trading Info Option Lesson 6: Call Ratio Back Spread

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Can you buy options on any stock?

Question by andronikosxx: Can you buy options on any stock?
for example I see FNM, Gold, Coke?

If I cant buy options/option spreading on any stock then how can I tell when I am looking @ Yahoo Finance who is selling options.

btw any recommendations on which company i should go with for option trading/spreading. Thanks

Best answer:

Answer by Mike S
You can buy options through your broker on most stocks that are traded on the New York Stock Exchange. You can tell if a stock has options available by looking under the ‘Options’ section on the left hand menu on the Yahoo Finance page. If the underlier (the stock) does not have options available under this page, then they do not exist on a public exchange.

If you are interested in trading options, I recommend you first setup up a virtual account on OptionsXpress.com and paper trade on that until you become comfortable with the mechanics and strategies of options trading. Options trading can be very profitable but it is also highly risky. Options are highly leveraged investments and subject to wild price changes when the underlying stock they are tied to moves up or down. You’ll learn this through virtual trading.

In terms of which stocks and strategies to go with, it’s not possible to give you a generic recommendation. You have to first decide how you want to trade options and then look for opportunities in the market that fit your strategy. You can trade butterflies, straddles, strangles, iron condors, spreads, or straight naked options. You should understand all strategies and be able to pick the correct one for the particular scenario you’re facing. With these options strategies you can profit from a stock going up, down or sideways. The important thing is that you know the general direction it will move (or not move) and the timeframe it will happen in. That’s why options trading is difficult, you have to determine direction and timing.

Good luck.

Add your own answer in the comments!

Credit Spread Trading Question 10 by Jeffrey Ziegler

www.JeffreyZiegler.com To view more FAQ videos about Option Credit Spreads or to get my FREE Video called Paychecks from Wall Street visit my website http
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Vertical Spread Option Trading II p5/6

Vertical Spread Option Trading II p5/6

Online Broker TradeKing Takes Investors Back to School with Robust Schedule of September Trading Webinars

Online Broker TradeKing Takes Investors Back to School with Robust Schedule of September Trading Webinars

Boca Raton, FL (PRWEB) August 24, 2010

Online broker dealer TradeKing (http://www.tradeking.com) today announced the line up for its September 2010 free online webinar series. Summer may be winding down, but TradeKing’s September webinars are gearing up to prepare investors for the historically heated months of fall trading. Investors will benefit from sessions on a range of topics such as learning how to choose and manage credit spreads, and when to use this strategy; chart pattern recognition; understanding the media’s coverage of the markets; learning how to use TradeKing’s Options Strategy Scanner tool; and understanding the basics of options pricing.

The September 2010 webinars will feature the following sessions: “Running a Credit Spread Business” with Dan Sheridan of Sheridan Mentoring; “Chart Pattern Automation” with Kathryn St. John of Recognia; “Trading the News,” with Bob Lang of BigTrends.com; “Options Strategy Scanner” with Jack Walker of iVolatility.com; and a Rookie’s Corner focused on “Option Price Behavior” with Jim Bittman of the Chicago Board Options Exchange (CBOE)’s Options Institute.

TradeKing’s webinars are free and open to TradeKing clients, as well as other investors. The October 2010 webinar schedule will be available starting September 21.

Tuesday, September 7 at 5pm ET

Running a Credit Spread Business

with Dan Sheridan of Sheridan Mentoring

Tuesday, September 14 at 5pm ET

Chart Pattern Automation

with Kathryn St. John of Recognia

Tuesday, September 21 at 5pm ET

Trading the News

with Bob Lang of BigTrends.com

Tuesday, September 28 at 5pm ET

Options Strategy Scanner

with Jack Walker of iVolatility.com

Thursday, September 30 at 5pm ET

Rookie’s Corner: Option Price Behavior

with Jim Bittman of CBOE’s Options Institute

About TradeKing

TradeKing (http://www.tradeking.com) is a nationally licensed online stock and options broker offering simple, low cost online trading fees ($ 4.95 per trade plus $ .65 per option contract) with no hidden costs or account minimums.2 A pioneer in integrating new financial social media as part of its innovative online equities, options trading and fixed-income trading platform, TradeKing has received multiple five-star ratings from top industry sources and was ranked number one in customer service by SmartMoney Magazine. (June 2010 SmartMoney Broker Survey).

Follow TradeKing on Twitter at http://twitter.com/TradeKing or fan us on Facebook at http://www.facebook.com/tradeking.

Options involve risk and are not suitable for all investors. For more information, please review the Characteristics and Risks of Standard Options brochure before you begin trading options. Options investors may lose the entire amount of their investment in a relatively short period of time.

Multiple leg options strategies involve additional risks and multiple commissions , and may result in complex tax treatments. Please consult a tax professional prior to implementing these strategies.

Webinars are provided for educational and informational purposes only. TradeKing provides self-directed investors with discount brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice. You alone are responsible for evaluating the merits and risks associated with the use of TradeKing’s systems, services or products.

All investments involve risk, losses may exceed the principal invested, and the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns.

TradeKing is not affiliated with, does not sponsor, is not sponsored by, does not endorse, and is not endorsed by the companies mentioned herein or any of their affiliated companies.

Online trading system response and access times may vary due to market conditions, system performance, and other factors.

Member FINRA/SIPC.

(1)    SmartMoney is a joint publishing venture of Dow Jones & Company, Inc. and Hearst Communications, Inc. All Rights Reserved Worldwide.

(2)    (Please see https://www.tradeking.com/p/home/tradeking/about/commissionsfees.tmpl for more details on trade commissions for low priced stock, bonds, mutual funds and other securities).

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, Vocus PRW Holdings, LLC.
Vocus, PRWeb, and Publicity Wire are trademarks or registered trademarks of Vocus, Inc. or Vocus PRW Holdings, LLC.

Related Option Spread Trading Press Releases

Please help with complicated options trading question?

Question by Serge G: Please help with complicated options trading question?
Supposed you know the following information about a market.

-Future is at 66

-70 strike straddle is trading at 27

-50-60 put spread is at 2.5

-50-60-70 put fly is at .2

-Assume volatility is constant accross strikes

What is the fair value for the 80 Call, 60 Straddle, 40 put?
Assume we had a volatility smile among the curve, how would this make your markets different?

Best answer:

Answer by Gary Hamilton
There is a lot of information missing in your question, so you cannot get a complete answer, as there are too many variables missing.

For example, you don’t mention whether the positions are long (or short), and whether the positions are being established for a credit or at a debit.

That said, I will give you the guidelines to help you find the solution. Here is how I would solve the problem – its important to understand the thinking process, rather than the numbers

1. Use call/put parity to find proxy prices* for the 70 strike options

2. Use the put spread and the put butterfly to determine the price of the 70 put (and hence the price of the 70 call – as a result of the algebraic relationship [call/put parity] in 1). Note: A simple linear combination of a butterfly and a vertical will result in the butterfly being ‘rolled’ (or ‘metamorphosing’ into one of the ‘wings’). I cant tell you which combination to use, since I don’t know which spread is long/short

3. Once you know the the price of the 70 options (calls and puts), you can then use those prices (along with the butterfly) to work out the price of the 60 put, and by extension, the price of the 50 put (since you know the price of the 50/60 put vertical)

Regarding fair values of the other options, it is trivial to work out the 60 straddle. Hint – you already have the price of the 60 put from the calculations above.

As for the 80 call and the 40 put, the best you can do is to ESTIMATE the price by plugging in the implied vols from one of the options you calculated above (you mentioned a flat implied vol smile). However, this is a waste of time, since in reality, all markets demonstrate a skew of some sort, across the strikes (same tenor) – i.e. either a ‘smile’ or ‘grimace’ , so calculating such prices is purely theoretical – and have no practical use.

* By proxy prices, I mean place holders, using simple algebra

I believe the guys over at http://www.trdpoint.com will be posting articles on this sort of thing (option trading – from beginning to advanced), in due course, as a lot of people mistakenly thing that it is complicated – it isn’t.

What do you think? Answer below!

Can being assigned while doing a call vertical option spread make you more money than just a regular spread.?

Question by fakechat6: Can being assigned while doing a call vertical option spread make you more money than just a regular spread.?
Generally speaking I hear on the boards a fear of being assigned when you play options. When I analyzed my vertical spread I came to the conclusion it might be a good thing but wasn’t sure if my math was so I am asking for a check on it.

Lets say your assigned a 2 days early because the spread on the bid ask was a little out of whack and it was better for the owner to exercise the option inseat of selling it back. I have a call vertical spread where I went long the 45 and sold short the 48. The Short call was assigned to me and I am now -100 short stock at 48 basis and still have my 45 call. (for simplicity ill ignore the debit I paid to do the trade). Assume the underlying stock is at 50. I figure if I end the trade now I lost $ 200 on the 48/50 -100 short and made $ 500 on the 45 call for profit of $ 300. Thats the max I could have made on the trade if I had sold the vertical. If the underlying stock goes up or down the next 2 days I beleive I keep my $ 300 gain because the long and short -100 just move together. However if the underlying stock drops down I also am garunteed at least $ 300 but I think i could even get more.

when I drop below the 45 call strike price the -100 short is not offset anymore buy losing money in the long call. Say the underlying drops down to 40 because a oil rig blew up or something. When I sell my long call I would get nothing because it is below 45 but my -100 short is now worth $ 800 because my basis in the short -100 is 48. So Basically a vertical call spread with a max profit of $ 300 can be worth much more because of assignment. I realize you have to pay interest and margin issues but is the basic math correct that I presented here, being assigned can be a good thing?

Best answer:

Answer by Money
Can you make your questions simple?

Give your answer to this question below!

Trading Forex, Shares and Commodities

As the major economies start to stabilise and the risk of a depression fades into the distance many are reflecting on a few important points. Firstly, how did it all happen? Secondly, how can they better protect themselves in the future?

If we were to be honest with ourselves, then we should probably accept that we can improve on at least a couple of the following:

1)    Tax efficient investments
2)    Long term investments
3)    Actively reviewing our existing invests, and
4)    Looking at new opportunities that the financial markets are currently providing

Of course, not everyone is sitting on their hands. Many actively trade stocks and shares. Whilst others regularly review their banking and mortgage arrangements.

A more common form of trading that people are turning to is spread trading or spread betting. It offers a good number of benefits compared to traditional share trading and the ease of access, speed and number of trading opportunities make it an attractive option.

Before we proceed though, it should be pointed out that, as with all forms of investment, there is a downside and you can lose more than your initial stake. So why spread trade?

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Put simply, there are many advantages.

One key advantage is the wide range of financial markets on offer including forex, shares and commodities. You can trade the Euro/Dollar, you can trade US, European and UK shares you can trade both Oil and Gold.

Note also that, as spread betting does not involve the transfer of ownership rights and it is simply a bet, it is not liable for stamp duty, income tax or capital gains tax*.

Being able to ‘short’ a market provides interesting opportunities. You do not have to speculate on markets to go up. If your research suggests that the Dollar/Yen exchange rate will go down you can speculate on it to go down. If your research indicates that Crude Oil will go up you can still spread bet on it to go up.

So whilst there are a good number of positives, it is important to understand the negatives.

Spread bets carry a high level of risk to your capital, you should only speculate with funds you can afford to lose. Like the adverts say, before trading, please ensure that spread betting matches your investment requirements. Familiarise yourself with the risks involved. Seek independent advice where necessary.

The Financial Services Authority regulates the UK spread betting firms. This helps to ensure a certain level of quality or, more importantly, client protection.

There are a number of regulated companies that offer thousands of international markets including companies like FinancialSpreads.com and PartyMarkets. Naturally, they both offer the normal benefits of spread betting including; tax free trading*, trading outside market hours, no brokers fees and no commissions.

* Based on current UK tax law, if you pay tax in another jurisdiction then tax law may vary.

Find More Option Spread Trading Articles

Online Broker TradeKing Rings in the New Year with New Line up of January Webinars

Online Broker TradeKing Rings in the New Year with New Line up of January Webinars

Fort Lauderdale, Fla. (Vocus/PRWEB) December 21, 2010

To help self-directed traders more confidently take the reins of their trading destinies in the New Year, online broker-dealer TradeKing (http://www.tradeking.com) today announced the schedule for its January 2011 free online webinar series. TradeKing’s webinar series, which continues to be popular among traders of all experience levels, is a cornerstone of the firm’s commitment to help educate traders about a range of investment strategies applicable in various market conditions. Kicking off 2011, the January webinar series will feature topics including options plays like the Long Call Spread; how to cut through the information clutter to simplify an investor’s trading system; an introduction to the Japanese Candlesticks approach to charting; and an overview of Covered Calls tailored towards rookie investors.

The January 2011 webinars will feature the following sessions: Part 13 in a series from TradeKing’s popular Options Playbook entitled, “Long Call Spreads: Setup and Uses” with TradeKing’s Senior Options Analyst and Playbook author, Brian Overby; “Simplifying Your Trading System” with Price Headley of BigTrends.com; “Using Candles to Quickly Find Trades” with Steve Nison of Candlecharts.com; a Rookie’s Corner on “Covered Calls as a Multi-Purpose Strategy” with Russell Rhoads of the Chicago Board Options Exchange and a “New Client Orientation” for TradeKing clients with trading specialist, Mike Rasmussen.

TradeKing’s webinars are free and open to all investors. The February 2011 webinar schedule will be available starting January 22.

January 2011 Webinar Schedule:

Tuesday, January 4 at 5pm ET

Long Call Spreads: Setup and Uses

with Brian Overby of TradeKing

Tuesday, January 11 at 5pm ET

Simplifying Your Trading System

with Price Headley of BigTrends.com

Tuesday, January 18 at 5pm ET

New Client Orientation

with Mike Rasmussen of TradeKing

Tuesday, January 25 at 5pm ET

Using Candles to Quickly Find Trades

with Steve Nison of Candlecharts.com

Thursday, January 27 at 5pm ET

Rookies Corner: Covered Calls as a Multi-Purpose Strategy

with Russell Rhoads of the CBOE

About TradeKing

TradeKing (http://www.tradeking.com) is a nationally licensed online stock and option trading broker offering simple, low cost online trading fees ($ 4.95 per trade plus $ .65 per option contract) with no hidden costs or account minimums.1 A pioneer in integrating new financial social media as part of its innovative online equities, options trading and fixed-income trading platform, TradeKing has received multiple discount broker awards from top industry sources and was rated best in customer service by SmartMoney2 Magazine, ahead of OptionsXpress, Scottrade, Fidelity, and TD Ameritrade. (June 2010 SmartMoney Broker Survey).

Follow TradeKing on Twitter at http://twitter.com/TradeKing.

Options involve risk and are not suitable for all investors. For more information, please review the Characteristics and Risks of Standard Options brochure before you begin trading options. Options investors may lose the entire amount of their investment in a relatively short period of time.

TradeKing provides self-directed investors with discount brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice. The content of this press release is provided for educational and informational purposes only, does not constitute a recommendation to enter in any of the securities transactions or to engage in any of the investment strategies presented herein, and does not represent the opinions of TradeKing or its employees.

Online trading system response and access times may vary due to market conditions, system performance, and other factors.

Member FINRA/SIPC.

(1)    Please see http://www.tradeking.com/fees for more details on trade commissions for low priced stock, bonds, mutual funds and other securities.

(2)    TradeKing was ranked #1 in Customer Service in the SmartMoney June 2010 Broker Survey based on the following categories: Mutual Funds & Investment Products, Banking Services, Trading Tools, Research, and Customer Service. SmartMoney is a registered trademark of SmartMoney, a joint publishing venture between Dow Jones & Company, Inc. and Hearst Partnership. Supporting documentation for any claims, comparison, statistics, or other technical data, will be supplied upon request by calling 877-495-5464 or via email at service(at)tradeking(dot)com.

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©Copyright 1997-

, Vocus PRW Holdings, LLC.
Vocus, PRWeb, and Publicity Wire are trademarks or registered trademarks of Vocus, Inc. or Vocus PRW Holdings, LLC.