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• Hedging With Spreads by Bradley J. Horn

  ARTICLE SYNOPSIS ...Hedging With Spreads by Bradley J. Horn A risk manager may prefer the flexibility and limited risk of a call or put strategy. The trader, however, may feel that the premium costs associated with outright option positions are too expensive. These cash flow problems may be overcome with a vertical spread, since this strategy combines the risk-reducing benefits of buying options and the income-generating benefit of selling options. For example, a transportation company that must acquire gasoline in the future is exposed to the risk of rising prices if the company lacks a fixed-price supply cont...

AUTHOR: Bradley J. HornDATE: SEP 1990

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• Speculating in vertical spreads by Bradley J. Horn

  ARTICLE SYNOPSIS ...Speculating in vertical spreads by Bradley J. Horn Many gasoline traders are familiar with the fundamentals of spread trading with New York Mercantile Exchange (NYMEX) energy futures. Far fewer, however, are able to recognize opportunities in option spreads, for good reason: The trader entering an options market for the first time may find himself subject to ""contract shock,"" for unlike the futures trader, whose spread choices are limited to 15 contracts, the options trader must deal with a bewildering assortment of contracts, each with its own price dynamics. Spread traders will find that...

AUTHOR: Bradley J. HornDATE: JUN 1990