The Volatility Edge in Options Trading: New Technical Strategies for Investing in Unstable Markets

5. Managing Basic Option Positions

This chapter focuses on basic option positions—long calls or puts, short calls or puts, long straddles, covered calls or puts, and a variety of variants employing simple combinations of stock and options. The words basic and simple are misleading. Volatility swings, bid-ask spreads, earnings announcements, expiration cycles, liquidity, and a variety of other complex issues affect so-called simple trades just as they do complex ones. Every trade, large or small, simple or complex, requires the trader to select a strike price and an expiration month. Strike price selection is impacted by many variables, time and underlying volatility being the most prominent. Sometimes seemingly simple trades can become very ...