Options Strategies

I attended the preview of live training seminar of Options University by Ron Ianieri at AKLTG.

It is an education session for me as I learned the basic options strategies from Ron Ianieri himself.

Stock Replacement Strategy
Idea is this strategy is to trade option that mimics the stock (go for small Theta and Vega but high Delta)
• Buying a call versus buying the stock
• Do not simply buy a call if you think the stock is going up
• Do not simply buy a put if you think the stock is going down
• Learn where the ‘sweet spot’ is for optimal profitability
Where is the ‘sweet spot’? Refer to choosing option with high delta (in the ranges 80-85)
• Which month of option to choose? Suggest to look at the stock movement to determine the appropriate month

Stock Replacement (Roll up)
• Stock replacement ‘Roll up’ is a bullish strategy
• Selling your long call with a lower strike while simultaneously buying a new call with a higher strike in a one to one ratio
• This trade produces a credit which is money received
• This credit is part of your profits being locked in

Example:
Imagine you buy a call option for stock XYZ with the strike price of $160, when stock XYZ price reaches $200, you sell that call option and at the same time buy another call with strike price of $180. You now have locked in a profit of $40 (simplified intrinsic value calculation for illustration purpose). As stock XYZ continue to move up to $220, again you sell that call option and buy another new call option with strike price of $200. By doing this, you again locked in a profit of $40. Repeat this cycle as stock XYZ continue to move up (as a form roll up) for a few times.


The Greeks
Delta
Change in option price relative to change in underlying asset price (Speed)

Gamma
Change in option delta relative to change in underlying asset price (Acceleration)

Theta
Change in option price relative to change in time left to expiration (Time Decay)

Vega
Change in option price relative to the change in the asset’s volatility (Historical Volatility)

Rho
Change in option price relative to changes in the Risk Free Interest Rate (Interest Rates)

So much more to learn about options trading. One of the books that I find very useful is Options Made Easy: Your Guide to Profitable Trading (2nd Edition) by Guy Cohen (listed as my recommended reading)