Trading strategies involving options and futures trading


There are four primary strategies we implement involving the writing selling of options. All examples are excluding commissions and fees. Uncovered, or naked writing, involves selling a call OR put without entering into an underlying futures contract. A naked call writer has a neutral to bearish view of a market, while a naked put writer has a neutral to bullish view on a market. In most cases we recommend selling out-of-the-money options. This means selling a call with a strike price that is above the futures price or selling a put with a strike price below the futures price.

In the case of a short call this premium is retained if, by expiration, the futures has moved lower, stayed the same, or moved higher but not up to the strike price of the call. In the case of a short put the premium is retained if the futures has moved higher, stayed the same, or moved lower, but not down to the strike price of the put. A short strangle is a strategy in which a trader simultaneously sells both an out-of-the-money put AND out-of-the-money call in the same market for the same contract month.

This is the optimum strategy for trading sideways markets. All of the premium which was collected upon the initiation of a strangle will be kept if the underlying futures contract is between the strike prices on expiration. Both options are out-of-the-money. A credit spread is a strategy that involves simultaneously selling an option and buying an option in the same month farther away from the market. The strategy is called a credit spread because the option that is sold has a greater value than the option that is purchased.

Therefore, when a credit spread is initiated a net credit is received. Selling a credit spread is a limited risk trade. The maximum risk on a credit spread is defined by the value of the width of the spread minus the premium collected at inception. For the call, you trading strategies involving options and futures trading 15 points.

This loss would be realized if the market is above on expiration. The same type of trade can be executed on the put side. Buy one closer to the money call or trading strategies involving options and futures trading and sell more than one deeper out of the money call or put.

The contract size for Silver is ounces. Options Education Selling Strategies There are four primary trading strategies involving options and futures trading we implement involving the writing selling of options.