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25 PROVEN STRATEGIES. for trading options on CME Group futures. HOW TO USE THIS BOOKLET. Pattern evolution: Each illustration demonstrates the effect of time decay on the total option premium involved in the position. The left vertical axis shows the profit/loss scale.
Theta: Theta stands for the option position’s sensitivity to time decay. Long options (i.e., options that you have bought) have negative Theta, meaning that every day you own that option, time decay is eroding the Time Value portion of the option’s value.
Covered Call. This strategy consists of writing (selling) a call that is covered by an equivalent long stock position (100 shares). It provides a small hedge on the stock and allows an investor to earn premium income, in return for temporarily forfeiting much of the stock’s upside potential.
Buy Put Buying or “Going Long” on a Put is a strategy that must be devised when the investor is Bearish on the market direction going down in the short-term. A Put Option gives the buyer of the Put a right to sell the Stock (to the Put Seller) at a pre-specified price and thereby limit his risk.
LEAPs and longer-term options are far better value on a per month basis, and they give you more time to be right, thus improving your chances of success. Another method is to buy only shorter-term deep ITM options.
The Complete Guide to Option Strategies shows you how options can be used to prosper under many market conditions, take advantage of time decay, and limit risk.
Strategy #1 – Buy a Call. Strategy #2 – Buy 5/9s of a share and take out a risk-free loan with a repayment of $17.777... The loan is ($17.777...)/(1.02) = 17.42919... Notice that these two strategies have identical payoffs, meaning that the two strategies must have the same value: C = (5/9)(40) – 17.42919... = $4.793...
