Chapter 8
Strategy: The Advanced Option Spreads
Employing the strategies contained in this chapter requires a higher level of options understanding. You should have a firm grasp on the Greeks and have a thorough knowledge of buying and selling both calls and puts. Don’t be afraid to paper trade these strategies and monitor their behavior in the open market. Because many of these strategies contain three or more different options, the behavioral characteristics can be foreign to a new trader.
MARKET NEUTRAL, VOLATILITY, AND EARNINGS SPREAD STRATEGIES
The basic options strategies and basic vertical spreads you have learned can now be combined to form new strategies that give you more opportunity to further reduce risk and add precision to your trades. While these strategies may seem complex, many of them are simply combinations of two vertical or other spreads. Dissect the components, learn the rules that govern their risk and reward, and test their behavior in a practice trading account before going live. They are not as difficult as you may think.
Butterflies, Iron Butterflies, Condors, and Iron Condors
I lumped these four strategies together because of their similarities in structure, risk, and preferred outcome, but for the sake of brevity and keeping you focused, I go into great depth on the Iron Condor strategy specifically, which I believe for the beginner may be the easiest to grasp and to employ, although based on what you have learned about vertical spreads, you should ...
