Gamma: How Quickly the Odds Change…

Delta, Gamma, Theta, Vega and Rho – you are likely to hear these "Greek" risk measures whenever traders talk about options. Although these terms sound complicated, they actually are easy to understand once you grasp a few basic concepts. Mastering them will give you a good understanding of why options behave the way they do under different circumstances.

"Fine," you might say "that's the theory, but is it the way options really trade?" The answer is "yes." The reason is that when call or put time premiums get out of line with each other, option market makers can make a risk-free arbitrage profit.

This week, we review what are known as the put/call parity rules. If you know one rule – and you remember your high school algebra – you can quickly master all the rules. Mastery of these rules gives you a lot more flexibility when planning your options strategies.

When you create bull put spread that is based on one of our "naked" put writing recommendations, you need to select a put that is reasonably close-to-the-money. You then need to find a put of the same expiration with a strike price that is both lower and further from the stock price than the recommended short put..

Writing "naked" options can be highly profitable, but it also can be very risky, since losses can easily exceed the margin that you originally posted. In this report, we show you how, in many cases, you can substitute a credit spread for an uncovered (or "naked") write. Because credit spreads have limited losses, their margins are often a lot lower than the margins on naked writes. At the same time, these spreads can still offer very substantial returns on capital.

This report is part of an ongoing series on option spreads. Spreads are combinations of different option positions on the same stock. Spreads are really not that complicated once you understand a few basic principals. The spreads that we will cover in this series will all have limited risk. Some of them can offer investors very efficient use of their capital.

This report is part of an ongoing series on option spreads. Spreads are combinations of different option positions on the same stock. Spreads are really not that complicated once you understand a few basic principals. The spreads that we will cover in this series will all have limited risk. Some of them can offer investors very efficient use of their capital.

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This report is part of an ongoing series on option spreads. Spreads are combinations of different option positions on the same stock. Spreads are really not that complicated once you understand a few basic principals. The spreads that we will cover in this series will all have limited risk. Some of them can offer investors very efficient use of their capital.

Because the net time premiums of calls and puts with the same stock, strike and expiration can be very close, it often happens that if we are recommending a particular call for covered writing, we are also recommending the corresponding put for "naked" put writing as well…

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