Options Spreads

Quote from youngtrader:

I did read your post but would like to hear more about these spreads and others.

Thanks
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Probably best to read some books first and then ask for clarification if necessary. This topic is huge, as has been pointed out several times.
db
 
If you want to see some examples of credit spreads in action you can check out my website: <a href="http://www.yonglonglai.com/" title="yonglonglai.com">www.yonglonglai.com</a>. I put my trading diary there, you might find it helpful

I trade bull put spreads (credit spreads) on the Australian Stock Exchange, I compared it with the US and you get better returns in Australia than you do in the US.


Good Luck
 
Its better because the returns are better.

Simply US options increment by $2.5 or $5 per strike and Australian options increment by $0.50 per strike.

From my personal experience, i find it easier to look for 10c - 15c premium on a 50c spread on the Australian Stock market (20-30% return)

Looking at the usual big stocks on the US, eg GOOG MSFT QQQQ etc. I find it quite difficult to get $1 premium on a $5 spread in the US market. I'm not saying it doesn't happen, just that there are more opportunities on the Australian Market if you want to get higher returns compared to the US Market for the same amount of risk.

I don't find any issues with options liquidity, I only trade on the top 50 liquid options on the ASX. (its nothing in comparison to the US liquidity, but the returns are much better)

Hope this makes sense.
 
Are the options european style or American Style? Thanks





Simply US options increment by $2.5 or $5 per strike and Australian options increment by $0.50 per strike.

From my personal experience, i find it easier to look for 10c - 15c premium on a 50c spread on the Australian Stock market (20-30% return)

Looking at the usual big stocks on the US, eg GOOG MSFT QQQQ etc. I find it quite difficult to get $1 premium on a $5 spread in the US market. I'm not saying it doesn't happen, just that there are more opportunities on the Australian Market if you want to get higher returns compared to the US Market for the same amount of risk.

I don't find any issues with options liquidity, I only trade on the top 50 liquid options on the ASX. (its nothing in comparison to the US liquidity, but the returns are much better)

Hope this makes sense. [/B][/QUOTE]
 
As an example, if I'm bullish I often sell an otm put vertical, expecting the underlying to move. But I could just as easily buy the call vertical and get the exact same risk/reward/greeks profile.
db
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Except the put spread produces a credit for your account, and the call spread produces a debit. Also, which position you should choose depends on where implied volatility is. Buy low, sell high. IV that is.

As to which strikes to choose, focus on the ATM strike. If IV is high, and you're bullish, sell the ATM put leg, otherwise if IV is low and your bullish, buy the ATM call leg.
 
Quote from yonglonglai:

Its better because the returns are better.

Simply US options increment by $2.5 or $5 per strike and Australian options increment by $0.50 per strike.

From my personal experience, i find it easier to look for 10c - 15c premium on a 50c spread on the Australian Stock market (20-30% return)

Looking at the usual big stocks on the US, eg GOOG MSFT QQQQ etc. I find it quite difficult to get $1 premium on a $5 spread in the US market. I'm not saying it doesn't happen, just that there are more opportunities on the Australian Market if you want to get higher returns compared to the US Market for the same amount of risk.

I don't find any issues with options liquidity, I only trade on the top 50 liquid options on the ASX. (its nothing in comparison to the US liquidity, but the returns are much better)

Hope this makes sense.
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The only reason Aussie options have 0.5 increments is because the stock prices are so much lower.

You find it difficult to get $1 permium on a $5 spread!?:confused: This is nonsense. The premium depends on a lot of things, as you may be aware, so unless you outline specific spreads or conditions you are looking at this is not a valid reason! Option pricing is the same wherever you look!
 
I tend to agree, the difference in credit compared to risk should be a function vols in any market. I'm glad it works for you though.
 
Quote from panzerman:

Except the put spread produces a credit for your account, and the call spread produces a debit. Also, which position you should choose depends on where implied volatility is. Buy low, sell high. IV that is.

As to which strikes to choose, focus on the ATM strike. If IV is high, and you're bullish, sell the ATM put leg, otherwise if IV is low and your bullish, buy the ATM call leg.
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1. There's a margin requirement for the credit vertical which thus negates this perceived 'advantage' of getting a credit in your account.
2. the greeks are the same for the credit and debit verticals so it doesn't really matter which one you pick - debits are synthetically credits and vice versa.
3. the difference between the verticals is in fill prices. The otm credit usually has a narrower bid/ask than the itm debit vertical.
4. if you're right in your analysis then the credit vertical will expire worthless, saving you some commission. The debit vertical, if you're right will cost some commission in exiting.
Best
db
 
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