Options  |  SEP 2005

The Lightning Spread And Other Strategies by Jesse Chen

Stocks & Commodities V. 23:9 (54-55): The Lightning Spread And Other Strategies by Jesse Chen Here are some strategies you can apply by combining two or more options. Options spreads are essentially the combination of two or more options. There are six components that you can build from. These are: 1. Buy call (BC) 2. Buy put (BP) 3. Sell call (SC) 4. Sell put (SP) 5. Buy underlying (BU) 6. Sell underlying (SU) You can have three variations on the first four options strategies on this list. They are: • In-the-money (i) • At-the-money (a) • Out-of-the-money (o) The phrase “the money” denotes the current price of the underlying stock or future. For example, if Microsoft is at 30: • A 30 call and 30 put are at-the-money • A 40 call and 20 put are out-of-the-money • A 20 call and 40 put are in-the-money The abbreviations listed here can help you organize your options strategies: 1. Buy call (BC): Buy in call (BiC), buy at call (BaC), or buy out call (BoC) 2. Buy put (BP): Buy in put (BiP), buy at put (BaP), or buy out put (BoP) 3. Sell call (SC): Sell in call (SiC), sell at call (SaC), or sell out call (SoC) 4. Sell put (SP): Sell in put (SiP), sell at put (SaP), or sell out put (SoP)

by Jesse Chen