TRADE FUTURES LIKE

THERES A TOMORROW.
Trade over 50 futures products virtually 24 hours a day, 6 days a week, with
thinkorswim on your desktop or your mobile device using TD Ameritrade Mobile
Trader. Trade futures on indices, currencies, commodities and more to diversify your
portfolio, and be better prepared to weather market conditions. You also get live
interactive in-platform education, access to former floor traders, and even the
ability to test-drive strategies without risk on paperMoney. Theres never been
a better time to make your fear of futures a thing of the past.

Visit tdameritrade.com/tradefutures to learn more and open a futures account.

Futures trading is speculative and is not suitable for all investors. Futures accounts are not protected by SIPC. Futures
trading services provided by TD Ameritrade Futures & Forex LLC. Trading privileges subject to review and approval.
Not all clients will qualify. This is not an offer or solicitation in any jurisdiction where we are not authorized to do business.
TD Ameritrade, Inc., member FINRA/SIPC. 2016 TD Ameritrade IP Company, Inc. All rights reserved. Used with permission.
 Download software at TC2000.com
or call 1.800.776.4940

Lng 10.52
Stocks & Commodities V. 27:12 (43): Explore Your Options by Tom Gentile
Explore Your Options
Got a question about options? Tom Gentile is the chief options strategist at
Optionetics (www.optionetics.com), an education and publishing firm dedicated
to teaching investors how to minimize their risk while maximizing profits using
options. To submit a question, post it to our website at http://Message-Boards.
Traders.com. Answers will be posted there, and selected questions will appear in
a future issue of S&C.
Short straddle to hedge?
Whats your opinion on establishing a
short straddle hedge to offset the risk of a
long straddle?
If a trader wants to establish offsetting
straddle positions in different contract
months, the combined spreads can be
an effective means of reducing the risks
associated with the greeks of theta and
vega. The net position is commonly re-
ferred to as a double diagonal.
A long double diagonal can be ap-
proached when a trader wants to hold long
curvature or premium in a longer-dated
straddle in anticipation of a stock move
and/or increase in implied volatility but is
concerned that a quiet near-term underly-
ing instrument will pressure the spread.
If the traders technical assessment is
correct, by selling a closer-in straddle
that decays faster due to its higher theta
factor, he or she will benefit. In this situ-
ation, the double diagonal should ex-
pand in value due to the near-term short
straddle collapsing faster than the held
longer-term spread.
At that point in time, the double diago-
nal could be closed for a profit. The trader
could also roll the short out for a month if
the time between the two spreads allows
for the adjustment and the trader main-
tains the same view at that point in time.
A separate offsetting straddle hedge
is when a long and short straddle is es-
tablished in the same calendar month.
Like the double diagonal, a short straddle
maintained on a different strike can re-
duce decay and volatility risk. The caveat
in constructing this position: the trader is
now holding the equivalent of either two
bull or two bear vertical spreads.
When the long straddle is established
on the lower strike relative to the short
straddle, two bull vertical spreads is the
net position. Conversely, when the lower
strike is home to the short straddle, the
trader is committing to the risks and re-
wards associated with a bear vertical strat-
egy. In each instance, the delta component
plays a more significant role in profitabil-
ity than with the double diagonal.
Speaking of Verticals
Ive heard verticals discussed as being
both a good way to reduce vega risk as
well as not being a practical means to
that end. How can both be right?
Actually, both answers are correct. The ef-
fectiveness of how a vertical can reduce vega
or theta is going to be largely determined by
the distance between strikes, implied volatil-
ity, and time remaining to expiration.
For instance, a situation where a bull
call vertical would do a good job of re-
ducing theta and vega risk would be if the
position was established on a stock with
high implied volatility on adjacent strikes
and a couple weeks left until expiration.
One recent example would be Research
In Motion (Rimm).
Back in late September and in front of
its earnings release, Rimm shares were
trading near $83. At the time, the at-the-
money October 80/85 call spread fetched
$2.50. By selling the 85 contract for $4.30
(closing price September 24) versus sim-
ply holding long the 80 call for $6.85, the
traders vega would be reduced from risk
of $0.077 per point drop in implieds to a
slightly short/flat factor of $0.004.
Similarly, decay or theta risk of more
than $0.11 and growing daily on the out-
right October 80 call would be flipped
into a marginally positive factor with this
particular vertical spread.
Traders should be able to appreciate
the short calls impact on theta as Rimm
needed only to sit at $83 to realize a
profit of $0.50 per spread as the vertical
expanded into expiration. Thats related
to the 100% extrinsic value of the 85 call,
which is larger than the extrinsic compo-
nent of the 80 call.
The reality of this particular vertical
turned out quite different as Rimm shares
plunged following its report. Nonethe-
less, for the outright bull holding only the
long call, the experience was much more
painful due to the greeks associated with
that contract.
Vertically Challenged?
Ive been thinking of selling puts on com-
Copyright (c) Technical Analysis Inc.
Tom Gentile of Optionetics
panies that I believe have strong long-term
prospects. If I get assigned, Im able to buy
the stock at a discount to where I see it as
attractively priced. If shares remain above
the strike, the premium is collected and I
can look to reestablish an additional put
sale if my outlook remains bullish.
I know selling naked puts receive lots
of bad press and is viewed as a risky strat-
egy. But would this approach really be a
poor one if Ive done the homework
like Cnbcs Mad Money host James Cra-
mer emphasizes so often?
Selling a naked put on a risk basis is the
same as establishing the buy-write, which
most often is preached as a conservative
strategy. Semantics aside, my belief is that
a bull put spread is a stronger approach.
By selling a bull put spread as opposed to
the naked put sale, the discount purchase
you crave in shares is much more manage-
able in the advent your outlook changes as
the stock price drops in value.
With the put spread, if youre eventu-
ally assigned on stock but no longer har-
bor the same optimistic prospects for the
company, you have a definite out. While
the trader obviously gives up some pre-
mium collection due to the purchased
put, theres much less stress with regards
to your obligation to buy shares as market
conditions shift and, quite likely, ones
perception of underlying value.
Whether the designed spread involves a
purchased put 2.5 points, five, 10, or even
20 points below the sold strike, a trader
has absolute control over their maximum
loss. Thats something to consider versus
the sometimes-riskier alternative of hav-
ing to use the open market to dump any
acquired shares at possibly much lower
prices that fall well below what was pre-
viously viewed as a discount.
Contributing analysis by senior Optionetics
strategist Chris Tyler
S&C
Daily technical commentary
by expert analysts to help you
make smarter investment decisions
From daily blogs to live webinars, StockCharts.com hosts free
current market analysis and educational commentary from some
of the industrys most distinguished technical analysts.

Free daily blogs featuring over a

dozen renowned technical commentators
John Murphy Martin Pring StockCharts.com hosts free daily blog content from over a
dozen professional technical analysts, including prominent
names such as John Murphy, Martin Pring and Arthur Hill.
Thousands of online investors trust StockCharts.com
to provide the unbiased expert analysis and enriching
Arthur Hill Tom Bowley educational commentary they need to cut through the
noise and make smarter investment decisions.

Live, interactive webinars hosted

Greg Schnell Chip Anderson by seasoned market technicians
Our free daily webinars are hosted by some of the financial
industrys most distinguished chartists. Join these technical
titans LIVE as they put their years of experience on display
and share invaluable insights into the tools and strategies
Carl Swenlin Erin Heim they use in their own trading. Tune in to any of our seven
different webinar shows for free, airing six days a week,
Monday through Saturday, and learn from the best to
boost your technical skills and financial prowess.

Gatis Roze Julius de Kempenaer

and more!

StockCharts.com
2015 StockCharts.com,Inc. All Rights Reserved. Information provided by StockCharts.com is not investment advice. You are responsible for your own investment decisions.
 Economics 101

Why does IBKR do more

trades than any other broker?
Because it is the least expensive.*

Why is IBKR the least expensive broker?

Because it does more trades.

How did we get here?

In a free economy the best technology wins!*

DOWNLOAD OUR FREE DEMO

ibkr.com/sc101

Interactive Brokers
Member - NYSE, FINRA, SIPC Supporting documentation for any claims and statistical information will be provided upon request.
*According to Barrons best online broker review on March 9, 2015, How Secure Is Your Securities Portfolio. Lowest cost of any broker and
Best Trading Experience & Technology in Barrons survey. For more info see ibkr.com/awards. Barrons is a registered trademark of Dow
Jones & Company, Inc. Based on DARTs of US ebrokers in Q4 2015. 05-IB16-981CH963
 Subscribe Or Renew Today!
Now a subscription to Technical Analysis of Stocks & Commodities magazine
gets you so much more than just a magazine:

Full access to our Digital Edition

The complete magazine as a PDF
you can download.

Full access to our Digital Archives

Thats 33 years worth of content!

Complete access to Working Money

The information you need to invest
smartly and successfully.

Access to Traders.com Advantage

Ideas, insights, evaluations, tips
and techniques that can help you
trade smarter.

8999
1 year...................
$

2 years.............. 149
$ 99

3 years.............. 199
$ 99

Or try our best value subscription: All for only

PROFESSIONAL TRADERS STARTER KIT
5-year subscription to S&C magazine, Working Money and Traders.com
Advantage, access to the digital edition and our entire 33-year archive
PLUS a free* book, Charting The Stock Market: The Wyckoff Method, all for a 5-year
for a price that saves you $150 off the year-by-year price! subscription
*Shipping & handling charges apply for foreign orders.

Visit www.Traders.com to find out more!

Email: Circ@Traders.com Phone: 206-938-0570 Toll free: 1-800-832-4642 Fax: 206-938-1307
Join us on Facebook at www.facebook.com/STOCKSandCOMMODITIES Follow us on Twitter @STOCKSandCOMM