Ratio Calendar Spreads

This works not only with calls, but also with puts. This is a straightforward, one-to-one form of the calendar spread, but it does not end there.   This calendar spread…

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A Reliable Reversal Signal

The crossover is between the middle band and price.   The default setting for Bollinger Bands is two standard deviations. When this default is applied, three bands appear. The upper…

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Types of Volatility

Historical volatility The best known form of volatility is based on underlying price behavior. Historical volatility has certainty, because it reflects price activity in the recent past, with no estimates…

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The problem of Option Math

This more “scientific” approach is believed to be conservative and reliable. But is it? Option people tend to be mathematical by nature. Most traders use math to pricing, payoff expectation,…

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Expiration Short Strategies

It is more profitable to sell extremely short-term contracts, whose time decay will be rapid and immediate. Another benefit of the short-term strategy is that it reduces exposure time from…

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Day Before Expiration Trading

   In cases when earnings and dividends are timed for this day, a range of separate risks and opportunities must be considered. The uncertainty of earnings surprises on expiration Thursday…

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Accurate Expiration Counting

Most listings report days to expiration on a calendar basis. A one-week expiration is expressed as 7 days, even though only 5 trading days remain. The defense of using calendar…

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Ranges of Exotic Options

Asian Option has a payoff decided by the average price of the underlying during the option’s life. Also called the Average Value Option, it may be set up with a…

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The Jump-Diffusion Pricing Formula

The flaws are not singular, but multiple. At least 9 flaws are easily identified. These are Focus on European exercise only; No allowance for dividends; Calculation for calls only, and…

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Double Barrier Options

It is an all or nothing idea, which either pays out under predefined circumstances, or expires worthless. Two triggers are involved, an upper and a lower price of the underlying….

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