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Disclaimer
Option trading can involve highly volatile returns and unlimited risk. Option trading is not suitable for every investor.
Overview
Introduction to Options and Graphical Analysis Why Trade Option Spreads The Role of Volatility Advantages of Selling Premium Covered Calls Credit Spreads Obtaining Candidate Stocks
IBM
Last Change Trade
2/18/03
Bid
Ask
MIV
Trade
Bid
Ask
MIV
Trade
IBM
Last Change Trade
2/18/03
Bid
Ask
MIV
Trade
Bid
Ask
MIV
Trade
IBM
2/18/03
IBM
Last Change Trade
2/18/03
Bid
Ask
MIV
Trade
Bid
Ask
MIV
Trade
IBM
2/18/03
IBM
2/18/03
IBM
2/18/03
1st Standard Deviation of Possible Price Outcomes Based on Last Month of Trading
IBM
2/18/03
IBM
2/18/03
IBM
2/18/03
IBM
Long 100 Shares of Stock
2/18/03
IBM
2/18/03
IBM
2/18/03
IBM
2/18/03
Option Spreads Help Create Positive Risk/Reward Ratios On Normal Sized Moves
IBM
Option Spreads Positive Risk/Reward Ratio Only on Normal Moves
2/18/03
Advantages of Selling Premium: Adopt the role of insurance company Time is on your side Through risk management, the long-term odds can be in your favor
IV
SV
IMPLIED VOLATILITY (IV) Measures the volatility of the underlying asset implied by current option prices Higher IV Means More Time Premium to Sell
STATISTICAL VOLATILITY (SV) Measures how much the price of the asset itself has bounced around recently Higher SV Means a Wider Standard Deviation of Possible Price Outcomes
Percentile Rankings
IV Percentile Rankings
100% EXPENSIVE 70%
30% INEXPENSIVE 0
IBM
2/18/03
IBM
Last Change Trade
2/18/03
Covered Call
Bid Ask MIV Trade
Bid
Ask
MIV
Trade
IBM
Last Change Trade
2/18/03
Covered Call
Bid Ask T.Prem Trade
Bid
Ask
T.Prem
Trade
IBM
2/18/03
IBM
2/18/03
IBM
2/18/03
IBM
2/18/03
IBM
Last Change Trade
2/18/03
Covered Call
Bid Ask T.Prem Trade
Bid
Ask
T.Prem
Trade
IBM
2/18/03
IBM
2/18/03
IBM
Last Change Trade
2/18/03
Bid
Ask
MIV
Trade
IBM
Last Change Trade
2/18/03
Bid
Ask
MIV
Trade
Bid
Ask
MIV
Trade
IBM
Last Change Trade
2/18/03
Bid
Ask
MIV
Trade
IBM
2/18/03
IBM
2/18/03
IBM
Last Change Trade
2/18/03
Bid
Ask
MIV
Trade
IBM
2/18/03
IBM
2/18/03
IBM
Last Change Trade
2/18/03
Bid
Ask
MIV
Trade
IBM
2/18/03
Position Requirements
IBM
Last Change Trade
2/18/03
Covered Call
Bid Ask T.Prem Trade
Bid
Ask
T.Prem
Trade
Stock Position:
100 shares X $79.33 = $7,933 Margined Position: $7,933 X 50% = $3,967 Minus $330 Credit for The Sold Call Total = $3,637
IBM
Last Change Trade
2/18/03
Bid
Ask
MIV
Trade
Spread - Credit:
Spread = $10 X 100 shrs = $1000 Credit = $390 Collected - 115 Paid Out $275 $1000 - $275 = $725
IBM
2/18/03
IBM
2/18/03