Calendar spread is a neutral options trading strategy. When an investor is neutral on the market, (neither bullish nor bearish) and is looking to make additional profits from his, or her, portfolio, a calendar spread is another way to make money investing in stock. A calendar spread is an option spread where the strike prices are the same, but they have different expiration dates. These spreads are also referred to as horizontal spreads or time spreads.

A calendar spread involves selling an option with a date that is close to expiring against the purchase of another option, of the same strike price, that has a later expiration date. This stock option trading strategy is perfect for traders to add profit to a portfolio by purchasing long-term options that have a reduced cost. Calendar Spreads benefit from time decay because the option sold loses value more quickly than the new one purchased. If the investor’s prediction of a neutral market is correct, the value of the calendar spread increases. A calendar spread is profitable because it capitalizes on the time value differentials when there is a neutral market.

When the option that is near term expires then several actions are possible. If the investor’s technical analysis still appears to be correct, then the trader can hold the long position (if sufficient time remains on it) and sell another short term option against the long position. If there is concern that the market is ready to fall then the investor can close out the long position and take the profits. If the trader is dealing in calls and the indications are for a more bullish market, the investor can simply continue to hold the long position and realize larger profits in the future. In any case, the cost incurred through buying the long position was reduced, or eliminated, by the premiums collected from the option that was sold.

If implemented successfully, the risks involved in a calendar spread are minimal. The potential losses are limited to the net premium paid. This is the money spent for the option that was purchased minus the money received for the near term option sold. When implementing a calendar spread, it is best to attempt to purchase long term options that are undervalued.

One successful trading strategy in a calendar spread is to buy LEAPS (Long Term Equity Anticipation Securities) because they can be purchased much cheaper than actual stock. The risk in this is that if the underlying stock goes down in price, the LEAPS lose value as well. Therefore, a trader hopes that the near term option sold expires without value, and then the investor sells more options farther out and continues to collect premiums. This way, the trader is able to reduce the cost of the LEAPS or actually realize a profit in a successful trade.

As with any stock market strategy, it is important for an investor to review the trading plan and understand the potential risks and rewards from this strategy.

There are many options trading strategies in addition to selling covered calls that you should learn including the buy strangle,  the buy straddle and the put hedge, just to name few.

A savvy, experienced investor has a money making plan for any condition in the stock market. Whether the market is stable or volatile, whether it is bullish or bearish, there is a method for finding a profit. Such is the case with a sell strangle which is a neutral options trading strategy. This technique requires the investor to sell a call option that is out-of-the-money as well as a put option that is also out-of-the-money. Both the call option and the put option need to be on the same stock with the same expiration date. This strategy is very similar to a sell straddle but with a sell strangle, the strike prices are not the same.

A sell strangle is made when the market has experienced a substantial upward move and your expectation is for consolidation. In this case, the possible results are a known, limited gain or unlimited risk. A sell strangle isn’t a move for the beginner investing in the stock market since the risk to reward ratio is not positive and extreme care with this maneuver is required.

The gain in a sell strangle is only the premium that is received for selling the call option and the put option. Remember, as with any stock transaction, your profit is reduced by any commissions. Done as a response to a dramatic upward move that has occurred, the investor is expecting the market to experience a consolidation and absorb its gains before moving again. Since the market is filled with extreme stock volatility, the cost of the Call and Put Options will tend to be very high. When the market does consolidate, volatility will decrease and lower the price of the options, allowing the investor to buy back the options at a lower price to close the position. With a Sell Strangle, the concept of time decay also works to the advantage of the investor. While this is a somewhat complex transaction, a sell strangle is an excellent stock option trading strategy for an experienced trader.

A sell strangle requires that the investor monitor the position for unfavorable movement and, if necessary, buy back one of the options if there is any indication that the market will resume its trend or reverse direction. If there is an indication that the market will resume its upward trend, the trader should buy back the call. If the market appears to be headed down then the trader should buy back the put.
It is important that the trader do stock market technical analysis prior to implementing this strategy. The powerful charting capabilities of this stock investing system will offer insight into movements in the market before attempting to enter a sell strangle. By using a trading system like Japanese Candlesticks, a trader can not only identify the mood of the market, but he or she can identify a stock that is a candidate for a trade like a sell strangle.

While a Sell Strangle is not advisable for everyone, it is one of several investment options that can create profits for a skilled trader. Using a tested stock trading plan, good technical analysis tools, and a system such as Japanese Candlesticks, a trader will find this method to be something that not only creates a profit, but adds another weapon to the arsenal.

There are many options trading strategies in addition to selling covered calls that you should learn including the bear call spread,  the bear put spread and the put hedge, just to name few.

Sell straddle is a neutral options trading strategy. When the market has just made a dramatic move and it is expected to consolidate, a possible trading strategy to implement is to sell a straddle. This technique involves selling a call option and a put option on the same asset with the same price and expiration date. The result is a known, albeit limited gain, and the danger is unlimited risk. Selling a straddle requires extreme caution and constant monitoring of the position, and the investor must be confident of his, or her, assumptions on the direction of the stock. A sell straddle is definitely not recommended for all investors; the risk reward ratio is not favorable to anyone but the most vigilant trader.

In a sell straddle, the risk is truly unlimited. The gain is composed of the premium that is received for selling the call option and the put option, minus any commissions. In most cases when selling a straddle, the put and call that are sold on options, are overpriced and at-the-money or close to it. This is done in response to a dramatic move that has occurred, when the expectation is that the market will consolidate and absorb its gains before moving again. Since the market is extremely volatile, the cost of the options is very high. When the market does consolidate, stock volatility will decrease and lower the price of the options, increasing the profits when the investor buys back the options at a lower price to close the position. With a sell straddle, decay also works in favor of the investor. While this is a somewhat complex transaction, a sell straddle is an excellent stock market strategy for an experienced trader.

A sell straddle requires that the investor monitor the position for unfavorable movement and, if necessary, buy back one of the options if there is any indication that the market will resume its trend or reverse direction. If there is an indication that the market will trend up, the trader should buy back the call; if the market appears to be trending down, the trader should buy back the put.

As with any transaction, it is important that the trader do technical analysis. Technical analysis with Candlesticks is a trading system that will help the investor to understand the movements in the market before attempting to enter a sell straddle. By using a stock trading system like Japanese Candlesticks, a trader can not only identify the mood of the market, but identify a stock poised for an implementation of a strategy like a sell straddle. The charting ability of Candlesticks is perfect for options research and the investor can more confident using this system.

While a sell straddle is not recommended for all traders, it is one of the investment options that can create profits for a savvy investor. Using a tested stock trading plan, good fundamental and technical analysis skills, and a system such as Japanese Candlesticks, a trader will find this strategy to not only be a benefit to the bottom line, but also a skill to know, and implement, in the future.

There are many options trading strategies in addition to selling covered calls that you should learn including buying puts, selling calls, and the buy strangle, just to name few.

In addition to free tutorials, videos, and live trading room hosted by Stephen Bigalow weekly, you  can access Steve’s daily market comments that provide insight into the markets. View member benefits for more information.

Selling covered calls is a neutral options trading strategy. One of the best techniques to learn when trading stocks is selling covered calls. Selling covered calls means that there are investors willing to pay for the right to take a stock if it reaches a much higher price. Selling a call requires that you have at least 100 shares of a stock. It is an excellent stock market strategy to implement while waiting for a stock to reach your identified sell point. This technique can be used repeatedly, and it can be a great way to create income.

For example, say that you purchased 500 shares of ABC Corp in 2000 for $25.50 per share. Since the current price is $26.00, you have basically broken even in six years. While you didn’t know what would happen during that time, you still could have been making money on your investment by selling covered call options against your shares. This would have allowed you make money even though your investment was sitting around doing basically nothing. You have 500 shares, so you can sell five options, since options must be sold in groups of 100. In this example, you are going to sell out-of-the-money (OTM) covered call options. This means that the stock has a strike price (the target price for the buyer) which is higher than the current price. The covered call that you are selling has a strike price of $30.00 per share and a premium of $ 0.25. Since you have 500 shares, the five covered call options that you sell will bring in a total of $125.00. This technique works well and only a substantial move higher forces you to sell.

By selling covered calls, you are able to accumulate income passively over time by collecting the premiums on your options. If your option doesn’t reach and maintain the strike price during the time period, the premium and the stock are yours. If you get assigned on your options and are forced to sell your covered calls, it is even better. When the $30.00 strike price is met, not only did you receive $125 from the premiums, but you also have a gain on the stock from your original purchase price of $25.50. That turns into a $2,250 profit.

Selling covered calls is an excellent stock option trading strategy, but it is no substitute for technical analysis and learning how to read stock charts. If you purchase a stock on a strong upward trend and someone forces you to sell your covered calls, you no longer have the stock and you are missing out on its upward climb. If you want to continue holding stock in this company, you must buy again and you will be forced to pay a higher price for it.
Selling covered calls is a great way to make money on your favorite holdings while you wait for them to trend upward.

There are many options trading strategies in addition to selling covered calls that you should learn including buying puts, selling calls, and the buy strangle, just to name few.

In addition to free tutorials, videos, and live trading room hosted by Stephen Bigalow weekly, you  can access Steve’s daily market comments that provide insight into the markets. View member benefits for more information.

Buy straddle is a breakout options trading strategy. In times when there is low stock volatility and a large unpredictable breakout move is expected, a successful trader might consider making a straddle buy. A buy straddle is implemented by purchasing a call option and a put option on the same asset with the same strike price and expiration date. Buy straddle can be an excellent strategy to use when the stock is poised for a breakout but the direction is unknown.

A buy straddle affords the investor limited investment risk, while offering an unlimited profit potential on a major move up or down. In such a strategy, the potential loss is limited to the premiums paid for the call and the put as well as commissions. A major move in either direction allows the investor to sell the opposite option and ride the one making the money, thus creating a highly successful trading situation.

When technical analysis indicates that a stock is trading in a triangle pattern, it is a prime target for a buy straddle. Frequently with this type of trading pattern an explosive move occurs near the tip of the triangle, but the direction of the move is not readily known. Since the call and the put cover both directions of movement, a reward is quickly realized in this maneuver. Once the direction is known, the other option is liquidated and the investor can ride the trend. At this point, it is important not to ride the trend too long since time decay works against the trade in this position.

When buying a straddle the put and the call that are purchased are either at-the-money or close to it. After identifying a triangle trading pattern with a tightening trading range, a position is initiated near the tip of the triangle. Because volatility is low, the options will be cheaper before a breakout occurs. Since this technique requires buying both a put and a call, buying before the spike is even more important. Straddle buying has excellent risk reward ratios since the actual risk is limited and the reward is potentially unlimited.

As with other stock option trading strategies there is risk, though limited, in a straddle buy. The actual purchase is more costly since both a put and a call are being purchased on the same option. If the option fails to break out before the expiration date of the call and put, the trader will lose money on the purchases. Decay is also a factor working against a buy straddle, but it is eliminated by initiating a position before the breakout and quickly selling the option on the wrong side.

A buy straddle is an excellent tool to use in a stable market when technical analysis indicates that a stock is ready to break out of a triangle trading pattern. In such a case, the trading range is very tight and the stock is likely to make an explosive move. Buy straddles create the potential for significant gains with limited risk of investment.

Be sure to also read about a buy strangle, another breakout options trading strategy used when trading stocks.

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A buy strangle is a breakout options trading strategy. It is used in times when there is low stock volatility and a large unpredictable breakout move is expected. A buy strangle is implemented by purchasing a call option and a put option on the same asset with the same strike price and expiration date. Because the stock is poised for a breakout but the direction isn’t known, buying a strangle can be an excellent strategy to use when trading stocks.

A buy strangle affords the investor a limited investment risk, while offering an unlimited profit potential on a major move up or down. In such a strategy, the potential loss is limited to the premiums paid for the call and the put, as well as commissions. It is very similar to a Buy Straddle, except that the investor is purchasing options that are out of the money, which makes the potential loss smaller because the options are less expensive to purchase. A major move in either direction allows the investor to sell the opposite option and ride the one making the money, thus resulting in highly successful trading.

When using technical analysis with candlestick patterns, and it indicates that a stock is trading in a triangle pattern, it is a prime target for a buy strangle. Frequently, with these types of stock chart patterns, an explosive move occurs near the tip of the triangle but the direction of the move is not readily known. Since the call and the put cover both directions of movement, a reward is quickly realized in this maneuver. Once the direction is known, the other option is liquidated and the investor can ride the trend. At this point, it is important not to ride the trend too long since time decay works against the trade in this position.

When Buying a Strangle, the put and the call options that are purchased are out-of-the-money. After identifying a triangle trading pattern with a tightening trading range, a position is initiated near the tip of the triangle. Because stock volatility is low, the options will be cheaper before a breakout occurs. Since this technique requires buying both a put and a call, buying before the spike is even more important. Strangle buying has excellent risk reward ratios since the actual investment risk is limited and the reward is potentially unlimited.

As with all stock option trading strategies, there is risk, though limited, in a strangle buy. The actual purchase will be more costly since both a put and a call are being purchased on the same option. If the option fails to break out before the expiration date of the call and put, the trader will lose money on the purchases. Decay is also a factor working against a buy strangle, but it is eliminated by initiating a position before the breakout and quickly selling the option on the wrong side.

A buy strangle is an excellent tool to use in a stable market when technical analysis tools indicate that a stock is ready to break out of a triangle trading pattern. In such a case, the trading range is very tight and the stock is likely to make an explosive move. A buy strangle is one of several investment options that creates the potential for significant gains with limited risk of investment.

In addition to free tutorials, videos, and live trading room hosted by Stephen Bigalow weekly, you  can access Steve’s daily market comments that provide insight into the markets. View member benefits for more information.

A Put Hedge is a bearish options trading strategy that requires buying puts during a bearish market to protect stock shares that while the trader is reluctant to sell, are vulnerable to a decline in the market. Successful traders utilize strategies such as the put hedge to insulate their portfolios from loss in a bearish market. This method also has the potential of unlimited profits while at the same time limiting the potential loss by the investor.

When a trader feels that their portfolio is exposed to a market decline, it is possible for the investor to have several options available to create a put hedge. If the trader feels his or her portfolio is sufficiently diversified, an excellent technique is to purchase index puts to protect the entire portfolio. To implement a put hedge, the investor needs to select an index that best represents his or her portfolio. If the trader has successfully identified a declining market, any losses incurred with the decline in assets will in turn be offset by the gains made as the value of the index puts, or put hedges, experience an increase.

In such a stock market strategy, the profit reward has the potential to be unlimited, since both the traders’ portfolio and put hedge could rise instead of fall. In this instance the investor can make money on the portfolio and the index puts minus the cost of the premium paid for the puts. If the technical analysis of the trader is correct and the market declines, the losses on the established portfolio will be limited because they will be offset by the gains realized on the put hedges that were purchased. These puts in turn have been successful, and the investor has created a put hedge which protected the trader’s portfolio in a bear market.

When the market turns or the investor once again has confidence in its stability, he or she can sell the index puts if they retain any value which gives the trader another avenue of profit. If the market index puts have expired, the trader will need to determine an appropriate course of action. If the market has truly turned, the investor can simply do nothing, since he or she no longer needs a put hedge to protect their stock portfolio. If the market is still bearish and unstable, then the trader will need to determine whether it is necessary to purchase an additional put hedge as protection against the stock market. If so, the method for this transaction will be identical to the original purchase.

As with any strategy in the stock market, it is important to analyze the expectations for the underlying asset and for the market before proceeding. Remember that this practice occurs during a bearish market, and the investor must realize that any strategy should be conservative and consistent with his or her stock trading plan. Whether using put hedges or buying out-of-the-money calls, it is important that the investor understands that the ultimate goal is to make money, as well as to protect the money already made.

Throughout his investment career, Stephen Bigalow has directed his investment acumen towards developing improved methods for extracting profits from the investment markets. His research, encompassing all fundamental and technical methods, resulted in verifying that Candlestick analysis was superior to any other method when evaluating stocks.

Japanese Candlestick trading signals consist of approximately 40 reversal and continuation patterns. All candlestick patterns have credible probabilities of indicating correct future direction of a price move.

In addition to Free tutorials, videos, and live trading room hosted by Stephen Bigalow weekly, you  can access Steve’s daily market comments that provide insight into the markets. View member benefits for more information.

A bear put spread is a bearish options trading strategy employed when the market is volatile and moderately bearish. In such instances an investor will look to make profitable trades that do not incur high risk. The bear put spread method, also known as vertical bear puts, is used by traders to realize profits when the market is looking to the money of the investor.

The profit and loss strategy for a bear put spread is very similar to a bear call spread. The bear put spread comes into play when a trader buys a put option on a particular stock that is out-of-the-money and sells an out-of-the-money put on the same stock. For this method both options should have the same expiration date. With a bear put spread, the trader does not immediately realize the net premium when establishing the position and must wait until the expiration date to see any profit. While the trader does not have money in hand, the profit potential is greater with a bear put spread.

While the bear put spread is riskier than a bear call spread, the potential for profit is greater than implanting the call spread. In a bear put spread, if the price increases above the in-the-money (higher) put option strike price at the expiration date, then the investor has a maximum loss potential of the net debit. Conversely, the maximum profit potential involved in a bear put spread occurs when the stock decreases below the out-of-the-money (lower) put option strike price. The maximum profit potential is limited to the premium collected for the calls sold less the cost of the premium paid for the calls that were purchased.

Traders will find more opportunities for profitable trading in a bull market; a bear market typically requires a trader to be more conservative in order to minimize risks and find trades that, while lucrative, are less risky. A Bear Call Spread is a perfect example of such a conservative move to create profits.

Throughout his investment career, Stephen Bigalow has directed his investment acumen towards developing improved methods for extracting profits from the investment markets. His research, encompassing all fundamental and technical methods, resulted in verifying that Candlestick analysis was superior to any other method when evaluating stocks.

Japanese Candlestick trading signals consist of approximately 40 reversal and continuation patterns. All candlestick patterns have credible probabilities of indicating correct future direction of a price move.

In addition to Free tutorials, videos, and live trading room hosted by Stephen Bigalow weekly, you  can access Steve’s daily market comments that provide insight into the markets. View member benefits for more information.

The bear call spread is a bearish options trading strategy that is used when the market is extremely volatile and moderately bearish. Due to the erratic movements in a bear market, an investor will in many instances, look to make moves that are profitable yet hold low risk. The bear call spread is also known as the bear credit spread.

When utilizing the bear call spread a trader sells a call option at one strike price and buys a call on the same asset, which is further out-of-the-money (at a higher strike price). In most cases, both options will have the same expiration date. The profit and loss strategy for a bear call spread is quite similar to a bear put spread; however with this technique the trader immediately receives a net premium when establishing the position. In a bear put spread, the premium is paid when the position is established. It is because of this difference that the investor already has money in hand at the inception of the bear call spread.

The bear call spread is lower risk than the bear put spread; however the profit potential is reduced as well. In a bear call spread, the risk is minimized because the investor purchases lower priced calls that provide protection if the price goes up significantly. Conversely, in a bear call spread, profit potential is limited to the premium collected for the calls sold less the cost of the premium paid for the calls that were purchased. As the name implies this strategy is used in a bearish market.

In general a bull market brings more opportunities for profitable trading. A bear market however, typically moves a trader into a more conservative approach of minimizing risks and finding trades that while lucrative are less risky. A bear call spread is a perfect example of such a conservative move to find profits.

Throughout his investment career, Stephen Bigalow has directed his investment acumen towards developing improved methods for extracting profits from the investment markets. His research, encompassing all fundamental and technical methods, resulted in verifying that Candlestick analysis was superior to any other method when evaluating stocks.

Japanese Candlestick trading signals consist of approximately 40 reversal and continuation patterns. All candlestick patterns have credible probabilities of indicating correct future direction of a price move.

In addition to Free tutorials, videos, and live trading room hosted by Stephen Bigalow weekly, you  can access Steve’s daily market comments that provide insight into the markets. View member benefits for more information.

Selling calls is a bearish options trading strategy that is also known by the name vertical bear calls. When an investor feels bearish on the market, a good strategy may be to engage in selling calls or selling bear calls. This is considered a bearish strategy because the trader profits if the underlying stock decreases in value. Basically, the strategy is to buy out-of-the-money call options and sell in-the-money call options on the same stock with the same expiration date. The plan is that the in-the-money stock closes lower than its strike price at its expiration date. Not the trader realizes maximum profits from selling calls.

When selling calls, the investor will experience maximum loss, when the stock price increases above the higher out-of-the-money call option strike price at the expiration date. This loss will be the difference between the two strike prices minus the net credit of the spread when it was originated. While there is risk involved this strategy allows investors to find profits even when the market is bearish by selling calls.

The downside of selling calls is that while it is lower risk than simply buying puts options, it also has limited profit potential. The break-even is at the lower strike price plus net credit. The maximum profit potential is when the stock decreases below the in-the-money call option strike price.

For example, an investor wants to sell calls on ABC, Corp. The stock price is $39.875. The trader sells an in-the-money call option with a June expiration at a strike price of $35 for $5. At the same time, the investor buys an out-of-the-money call option with a June expiration at a strike price of $40 for $1.56. Selling a call such as this is a net credit of $3.44 (spread of $5) or the difference between the costs of the two options. If the stock price is lower the in-the-money strike price on the expiration date, this would be a maximum profit of the net credit when selling the calls. ($5.00 – $1.56= $3.44 x 1 contract (100 shares) for a maximum profit of $344) Conversely, the maximum loss would be if the stock closed above the out-of-the-money strike price on its expiration date. ($5.00 Call Spread – $3.44 net credit received = $1.56 x 1 contract for a maximum loss of $156.00) Because the risk is low, the risk reward ratios when selling calls are still very good.

A successful trader will adequately investigate such a move prior to selling calls. That way he or she can be assured that the trade has a high probability of success. As with any trade the investor needs to understand the risks and potential profits involved in order to make a wise decision. Using a stock trading system such as Japanese Candlesticks, the investor has access to charts that are understandable and powerful data in the attempt to sell calls to make a profit.

In addition to Free tutorials, videos, and live trading room hosted by Stephen Bigalow weekly, you  can access Steve’s daily market comments that provide insight into the markets. View member benefits for more information.

Learn how you can quickly learn to read stock charts and make money trading using candlestick patterns.