Options Analysis Software
the Lightning Spread (tm) Tutorial
The Lightning and other new spread strategies
SPREAD STRATEGY NEUMONICS
Options spreads are simply the combination of two or more options.
You have six components to build from:
1 buy call (bc), 2 buy put (bp),
3 sell call (sc), 4 sell put (sp),
5 buy underlying (bu) 6 sell underlying (su).
From the first 4 options strategies, you can have three variations:
In the Money(i), at the Money(a), or Out of the Money(o).
"The money" denotes the current price of the underlying stock or future.
For example if Microsoft is at 30, a 30 call and 30 put are "at the money".
A 40 call and 20 put are "out of the money".
A 20 call and 40 put are "in the money".
From the above abbreviations, we can more easily organize your options strategies:
1 buy call (bc): buy in call (bic) buy at call (bac) buy out call (boc)
2 buy put (bp): buy in put (bip) buy at put (bap) buy out call (bop)
3 sell call (sc): sell in call (sic) sell at call (sac) sell out call (boc)
4 sell put (sp): sell in put (sip) sell at put (sap) sell out put (sop)
We can even emphasize way in and out of the monies with capitalizing the abbreviation:
i="in" I="way in" o="out" O="way out"
A good way of finding new spread strategies is visuallying by using a profit and loss VS underlying price Graph.
For example, the buy call strategy p/l vs price graph would look like a backwards leaning capital L as follows:
Using a free options software package such as Optionstar EZ,
http://www.optionstar.com/intro/ezdl.html
we can input the options data, and see the pl vs price graphs for our custom spreads.
From trial and error testing, we can build an unlimited combination of options
and instantly view the pl vs price until we find something that looks good.
Here are some newly discovered options spreads that you can add to your trading.
Lightning
The Lighting Spread in this example is: sell at call (sac) + sell at put (sap) + 2 buy way out put (2bOp)
It is a neutral bearish position giving a small reward if the underlying stays the same and unlimited downside
reward / upside risk.
Snake
The snake in this example is: sell at call (sac) + sell way in put (sIp) +
2 buy way out put (2bOp)
It is a neutral bearish position giving a small reward if the underlying stays the same and unlimited downside
reward / upside risk.
Turtle
The turtle in this example is: sell at call (sac) + sell way in put (sIp) + buy way out put (bOp)
It is a neutral position giving a small reward if the underlying stays the same or goes slightly up
and small downside risk with unlimited upside risk.
Twin Peaks
Twin Peaks is: buy at call (sac) + buy at put (bap) + 2 sell way out calls (2sOc) + 2 sell way out puts (2sOp)
It is a neutral position giving a small reward if the underlying goes up or down slightly
with unlimited upside and downside risk.
