101Option Trading Secrets Section 10 ppsx

Section 10 Power Plays [...]... powerful weapon in your arsenal 289 CONCLUSION These 101 secrets are the trading tactics, strategies and insights that I have discovered work in the real world! If you use some of these secrets as you develop skills to trade options, you will hopefully not pay a high tuition in this school of real life trading You will make mistakes along the way, but these secrets should help you avoid the more painful... probability of hitting 50 would have been 4%, so there is a 96% chance of breaking even or making a profit Rambus closed on January 2003, expiration at 8.05, so your profit would have been $805 282 Secret 100 THE DIAGONAL SPREAD One of my favorite trades is the diagonal spread A diagonal spread is a time or calendar spread The diagonal spread that I love to design is a special credit time spread Here you... unless that option loses most of its value, but use some common sense here If the longer term option you hold has little value, hold on to it Surprise volatility may give you a surprise payoff 286 Secret 101 THE ULTIMATE POWER PLAY: THE SECRET SURROGATE The best has been left for the last One of the most powerful strategies that I use can create a powerful risk-reward picture It is a debit Leaps® spread... This strategy can be used for stocks, indexes and futures The more expensive nature of long term options allows you to create debit spreads that have wonderful potential payoffs, sometimes as high as 100 0% And if you are fast on the trigger, on more volatile stocks and futures your probability of making a profit at some time during the life of the trade can be very high This spread can also P O W E... chance the spread would double in value some time during the life of the option play And that is exactly what happened when Cisco rose to 24.You can’t beat a strategy where you have an 80% chance of a 100 % gain and a chance of a home run with a lower priced, limited risk trade Another example is a El Paso Corporation (EP) spread that I entered on September 23, 2002 when EP was 7.51 Here I : 1 Bought... when EP moved to 11.3 When designing such a trade, the option that you sell to offset the cost of the option you are buying should be several strike prices away Try to design one that has a spread of 10 points or more between strike prices and shows a maximum profit of at least 400% Also, using a simulator, try to find one that has over an 80% chance of profiting Take profits on half of your position if... OF THE ROAD FOR INDEX CREDIT SPREADS Here are the guidelines I have set for index credit spreads: 1 Use index options 2 Sell (write) a far-out-of-the-money index option 3 Buy an index option that is 5, 10, or 15 points further out-of-the-money 4 Make certain to get a credit of at least 45 P O W E R P L AY S 5 Enter such spreads with less than three weeks before expiration 6 Set a stop-loss that is out-of-the-money . Section 10 Power Plays