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Option Volatility and Pricing: Advanced Trading Strategies and Techniques, 2nd Edition by Sheldon Natenberg

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 12

Bull and Bear Spreads

Although delta-neutral volatility trading is the foundation of theoretical option pricing, there is no law that requires a trader to initiate and maintain a delta-neutral position. Many traders prefer to trade from a bullish or bearish perspective. The trader who wishes to take a directional position has the choice of doing so in either the underlying instrument itself, buying or selling a futures contract or stock, or by taking the position in the option market. If the trader takes a directional position in the option market, he must still be aware of the volatility implications. Otherwise, he may be no better off, and perhaps even worse, than if he had taken an outright position in the underlying contract.

Naked Positions ...

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