Today I’d like to welcome Dave Rivera from DeltaNeutralTrading.com. Dave has been keeping me up to date on the latest options news and information. I can say that because of his emails and phone calls I’ve learned more about options trading then I ever thought I could. Enjoy his post below…and you’ll see what I mean
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Please only use these examples for educational purposes.
Paper trade them.
I like to look at options in comparison to one another. I am looking at how much an option costs per day compared to an option from a different month in the same futures market. Let’s look at Gold.
October Gold futures contract closed at 953.60.
(September options follow the October futures contract)
September Gold options have 35 days left until expiration.
October Gold options have 65 days left until expiration.
Let’s look at the call side. If we thought the market was going to stay steady, we can look to put on some option spreads. We want to buy options that will lose less premium per day and per week than the options we will sell. We don’t know for sure what will happen but we can get an advantage by looking at the price per day of the options.
We will look at the money calls and the out of the money calls.
September Gold 950 Call options settled at 29.40.
October Gold 950 Call options settled at 41.20.
The October 950 Call is 1.4 times more expensive than
The September 950 Call, but it HAS 1.9 times more time left.
September Gold 1100 Call options settled at 1.90.
October Gold 1100 Call options settled at 7.70.
The October 1100 Call is 4.1 times more expensive than
The September 1100 Call, but it ONLY has 1.9 times more time left.
Normally traders will sell the front month and buy the further month. That is great with the at the money options but not true with the far out of the money options. When putting on any calendar spread, buy the cheaper cost per day options and sell the more expensive. Even if you are not putting on a spread, this is a great way to choose which option to buy or sell.
For more information on these non-directional option techniques, visit the link below:
Educational Non-Directional Option Techniques
take care,
dave
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If you’d like to learn more about Dave and his options insight check out his site DeltaNeutralTrading.com
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