Options Education

OIC305C: Options Strategies in a Neutral Market

Course Objective:

To understand various option strategies that can be used given a neutral outlook. When an investor believes individual stocks or the markets are headed sideways there are numerous ways to implement option strategies to benefit from this outlook. This course will cover the risks and potential rewards of a few of these strategies.

Who Should Take This Course:

Advanced students

Course Description:

"Options Strategies in a Neutral Market" is the third of the market direction theme courses. This course has been created to educate investors on various option strategies best suited for a non-directional or neutral market. A unique component of this course is that every strategy presented is a spread. These different spreads are designed to use time decay to its advantage. At the completion of the chapters and prior to the final quiz the student should know and understand all the strategies presented.

Course Chapters

Chapter 1 - Introduction

In the introduction, a description of time decay is given along with the uses of writing options to take advantage of time passage. The risk reward and profit potential of these spreads is discussed in the introduction as well.

Chapter 2 - Time Spread

This chapter covers the use of time spreads in a neutral market. The erosion of front month time premium is explained and interactive examples are provided for using a time spread.

Chapter 3 - Covered Call

In this chapter the adaptability of the covered call is explored in depth as a tool that can be used in a neutral market. This chapter illustrates in specifics the time decay function of the covered call and how a covered call can be customized to a neutral market environment.

Chapter 4 - Collar

This chapter introduces the student to the protective collar as a strategy for a neutral market. This chapter explains how a collar can take on the role of a covered call along with a protective put. The ability to put this type of trade on as a credit is explained in detail.

Chapter 5 - Straddles & Strangles

For this chapter straddles and strangles are introduced in the context of a neutral market environment. While these strategies are directly affected positively by time decay, this chapter explains that the associated risk is higher as well. This chapter gives examples of various strangles and straddles in a neutral market.

Chapter 6 - Butterfly

In this chapter the butterfly is explained along with instructive descriptions of figuring maximum profit, fixed maximum losses and the ideal outcome. This chapter also describes the various components of a butterfly and the ability to close out each component separately.

Chapter 7 - Conclusion and Quiz

Review of key points and final quiz.

Course Resources:

Podcasts

OIC222P: LEAPS

OIC341P: Income Strategies Part 1

OIC342P: Income Strategies Part 2

OIC430P: Managing the Product: Strategic Alternatives to Inaction, Part 1

OIC431P: Managing the Product: Strategic Alternatives to Inaction, Part 2

Webcasts

OIC301W: Trading Spreads

OIC302W: Time Spreads

OIC303W: Straddles and Strangles: Comparing and Contrasting These Two Volatility Strategies

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