Hi I would like to know more about trading options spreads. First what is the advantage of spread trading options versus just putting on an outright option? Is it just to reduce the premium costs? I hear guys talking about butterflies, condors, ratio and bull call spreads what exactly are these kinds of spreads and what are you trying to accomplish by putting these on? Also aren't these kinds of spreads extremely commission expensive? Wouldn't you be better with just an outright option or future? I trade the grains and energies. What are the most common option spreads for these futures? If anyone could help me out with these questions it would be greatly appreciated.
its a big subject... learn the basics from a couple of books.. then trawl through loads of threads here on et search amazon for beginners books and culminate wih Natenburg.... there's required reading after this but best not to terrify you too early....
Credit Spreads take advantage of time decay. You expect no movement - or little movement - in the stock. Debt Spreads reduce the cost of long positions, but also cap profit potential. You expect the stock to move in one direction.
What about the other spreads - calendars, flies ...? Also your answers are a little incomplete and your generalisations a little too general. A credit spread has negative gamma if it's otm (positive if itm) but still benefits if underlying moves in one direction or sideways or even a little against predicted direction depending on the moneyness of the short strike. A debit spread is the same as a credit one synthetically so it depends on where the spread is positioned as to whether time decay and iv work for you or against you. As an example, if I'm bullish I often sell an otm put vertical, expecting the underlying to move. But I could just as easily buy the call vertical and get the exact same risk/reward/greeks profile. db
Options Spreads is a huge topic so I was just giving a very brief outline. In a lot of threads like this the original poster will just disappear so no sense in going into too much detail.
Dude I am not going anywhere I truly want to learn more about these kinds of spreads. Sorry I probably was not specific enough. The truth is that I want to learn more about options and spreads in options basically because they are about the only chance I will have to be able to trade on the floor. Like you all probably know options are almost 100% floor traded and with the complexity of them I imagine they will be that way for some time. So considering my age I will never get a chance to trade futures in the pits but maybe there is a chance for options? Like I said I mainly deal with the grain and energy futures and if these highly complex spreads don't really apply to these types of markets please tell me what spreads would work instead. Although I would like to still know about some of the more complex spreads. Thanks
Did you research or Google Credit Spread and Debt Spread? I posted those terms in bold on post #3 so that they stand out.