No lack of OPTIONS

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PebbleTrader
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Postby PebbleTrader » Fri Mar 01, 2013 10:51 am

Multi-Legged Options Strategy

Most option traders does not trade simple call and put options, but they trade a combination of them in a single option order. This type of trading strategy is known as multi-legged options trading. A multi-leg option order will allow the trader to buy and sell a number of different options simultaneously without placing separate orders.

The basic components of a multi leg options order are the call and put options, which are available for stocks and futures. Multi-legged trading includes a variety of trading strategies such as straddle trading, strangle trading, ratio spread and butterfly spread etc. These strategies can be used to profit from a variety of market condition, bullish, bearish or neutral. Multi-legged options trading require complex analyses with high accuracy. There are lots of options trading systems which enable traders to finding out suitable trading opportunities.

The main advantages of multi-legged options trading strategies include profit from any market condition, requirement to place only one order to buy or sell a number of options, ability to perform advanced options trading strategies, etc. But as told earlier the trading requires substantial market analysis and also involves considerable risks.
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Postby PebbleTrader » Fri Mar 01, 2013 10:59 am

Looks like there are 1, 2, 3 & 4 leg plays
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Postby PebbleTrader » Fri Mar 01, 2013 1:00 pm

So the idea with legging into a spread would be to enter each leg at different points in time?

If it's a 4 leg play, than you might enter 2 legs at first and than enter the other 2 legs at a later point in time?
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Postby Braathen » Fri Mar 01, 2013 2:13 pm

"So the idea with legging into a spread would be to enter each leg at different points in time? "

Yeah im pretty sure thats what it means. (or at the right prices)

I wonder if the legging in and getting the right prices could
lead to a no risk trade or atleast very low risk..
meh.. just a shot in the dark

Thanks for all the work you put into finding this info PT.
Good stuff!
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Postby aliassmith » Fri Mar 01, 2013 2:43 pm

Braathen wrote:"So the idea with legging into a spread would be to enter each leg at different points in time? "

Yeah im pretty sure thats what it means. (or at the right prices)

I wonder if the legging in and getting the right prices could
lead to a no risk trade or atleast very low risk..
meh.. just a shot in the dark

Thanks for all the work you put into finding this info PT.
Good stuff!


Ya its like my example of legging into the butterfly. Take a position you can live with riskwise and leg into other options at better prices in the future.
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Postby MightyOne » Fri Mar 01, 2013 6:12 pm

Yes Braathen, you can generate a credit, if you wait, and still have a shot at a second payday.

Or things could turn for the worse and you end up down a few hundred (or thousand) dollars if you wait too long to hedge.

I say this not to scare you but to point out that you leg into windows not open doors ;)

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Postby PebbleTrader » Sat Mar 02, 2013 5:33 pm

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Postby PebbleTrader » Sat Mar 02, 2013 6:51 pm

This shows how the option call value decreases when it is OTM, it decreases more and more the further OTM it is or as time approaches expiration more and more.

The option call value when ITM shows the intrinsic value plus the time value. The time value decreases as time approaches the expiration at which point the value is just the intrinsic value.

Also note that at any time other than expiration, a $1 move in the underlying price will result in an option price change of less than $1.

Remember, only the time value is decreasing with the passage of time.

Image
Last edited by PebbleTrader on Sun Mar 03, 2013 5:55 pm, edited 4 times in total.
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Postby PebbleTrader » Sat Mar 02, 2013 10:34 pm

What percentage of time are you guys buying options (long a decaying asset) versus selling options looking to collect the premium?

How often are you looking to trade out of an option prior to expiration?
Last edited by PebbleTrader on Sun Mar 03, 2013 5:55 pm, edited 1 time in total.
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Postby PebbleTrader » Sun Mar 03, 2013 5:54 pm

Step 1 it seems is to collect premium through option spreads (initially your profit is limited) than take accumulated profit in step 2 and do the option plays that offer unlimited profit (directional play).
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