Option Credit Spreads For Profit

The Truth About The Greeks I often wonder if the Greeks were invented to make options inaccessible to normal people. I can't ever remember hearing a discussion about Greeks that made me money. Some drop one Greek factoid after another until they are sure they have proven themselves the smartest guy on options as every eyeball in the room glazes over. Greeks can be far more academic than useful if care isn't taken to make the interpretation of Greeks actionable. Greeks can be an invaluable tool, but it's only a tool and needs to be coupled with a solid options trading method. Greeks are like gauges on an automobile, you can successfully drive a car without an oil gauge, but it's handy to have should you run low on oil. Every trader should eventually learn Greeks if they are serious about options, but Greeks won't make you money; however, they will help an option traders to effectively monitor and manage various risks associated with options positions.

Iron Condors Explained Iron Condors are generally referred to as a neutral strategy but I see it as more than that. The basic concept involves putting on 4 trades to build the "iron condor". A Bear Call Spread and a Bull Put are put on to establish the iron condor. Theoretically the initial expectation is that the price of the underlying will stay pretty much unchanged and profit is derived from simple time decay. I see an element of direction, even if it is sideways to get the most advantageous strike prices. Technical Analysis and seasonal tendencies can be used to fine tune the iron condor. Lets look at a stock like NFG that is in the natural gas business. Every year for the last 10 years this stock has gone up in September and continued rising until the end of the year. Knowing this seasonal data, you can skew your condor to best fit price expectations. If the stock goes no where you can still win but your putting in your edge which makes all the difference in long term profitability.

A Twist On The Conventional Wisdom Most option players suggest only selling premium on index products. The argument for this is due to the exposure of erratic moves on individual stocks. You know, like Bear Stearns going belly up over a weekend or a hostile takeover that sends stock prices soaring making your trades losers in a blink of an eye. For this reason major indexes like the SPY, IWM, QQQQ, and DIA get much of the action. By virtue of this fact, the most competition are in these major indexes. It's far more difficult to get an edge if the most experienced, best capitalized and "connected" are competing to sell the same premium you are. I prefer selling premium in individual stocks, but you can't do just one for the price shocks that any single underlying can face. It is necessary to sell premium on a basket of 10-12 underlyings to militate the the risk of a single underlying stock blowing up. You must always be aware when earnings are being released because that is likely to add volatility. And above all else, make sure you use a strategy that limits risk.