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June 24, 2005
SFOMag July '05 Issue: Options & Trading Psychology
The Stocks, Futures & Options Magazine, SFOMag continues to give out FREE online and regular subscriptions - go sign up!
The July '05 issue has an excellent set of articles pertaining to two of my favorite topics: options and trading psychology; check out the summary posted recently by Trader Mike. The cover story "WHAT’S IN YOUR HEAD? Becoming a Trader" is co-authored by Brett Steenbarger, who publishes a must-read blog with daily market updates, trading psychology research, proprietary market indicators, and such.
Here's some excerpts from the "
OPTIONS OVER EASY: The Incredible Versatility of the Credit Spread" article, authored by
Boris Schlossberg:
There are almost as many ways to use a credit spread in options as there are ways to use an egg in the kitchen. :-)
A trader who puts on a credit spread can make money if prices move as he anticipates or if prices simply stand still. The ability to win in two out of three possible scenarios is a tremendous edge that often trumps the poor risk/reward ratios credit spreads offer.
Time decay is the credit spread trader’s best friend.
Precision is not necessary for success, being close is good enough. What is absolutely vital is good execution.
To successfully trade the credit spread, a trader need not be deadly accurate on direction, but he should be very precise in price.
By capping losses, the credit spread protects the trader from runaway risk like takeovers to the upside or fraud to the downside.
Forex market provides the retail trader with an opportunity to trade exotic options like the “no-touch” option, which states that the trader will receive a predetermined payout in return for the premium paid if the currency never touches a certain price point before expiration. Since this option is far cheaper and often offers a better risk/reward ratio, it can be an effective substitute for the credit spread in the FX market.
Posted by galatime at June 24, 2005 09:58 AM
