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Loved the explanation of how a 4 point spread is the same as selling four 1 pt. spreads. Understanding that concepts REALLY helps in deciding whether it's worth widening a 2 pt. spread to 3 pts.; or 3 pts. to 4 pts.
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Great Write-up Mark. I believe it's the first and most informative intro I've come across thus far on these Alpha indices. I think you have a winning idea with the name of a potential inverse - the Omega Index. I can imagine the types of headlines that could be created off of Alpha and Omega. www.tylerstrading.com
Toggle Commented Nov 4, 2010 on Alpha Indexes at Options for Rookies
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Well done Mark. Perhaps another point worth mentioning regarding Open Interest is its use in gauging liquidity. Typically options with high open interest have tight bid/ask spreads and are therefore more efficient trading vehicles. Those with low open interest often have wider bid/ask spreads making them much tougher to trade.
Toggle Commented Oct 13, 2010 on The Story of 'Open Interest' at Options for Rookies
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Great, Thanks-
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Hey Mark, You've talked previously about how collars and put spreads are equivalent. Since selling a put spread and buying a call spread (same strikes & expiration) are also equivalent, any reason why you seem to mostly use put spreads as an alternative to collars as opposed to call spreads. I'm assuming it's just personal preference, but wondering if I'm missing anything.
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Thanks Mark!
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Hey Mark, My understanding of how dividends affect option prices has always been a bit fuzzy. Someone asked me this question the other day and I wasn't sure of the answer. TRA (Terra Industries...)issued a $7.50 dividend yesterday causing the price of their stock to gap from $43 to $35 and change. Although the stock chart shows the price now around $34, the option chain is still pricing the December options as if the stock is still around $43. Say someone is short the Dec 38 puts. Based on the option chain, they still look and are priced as if there OTM (current price = $.10). In addition it looks as if there are some months still pricing based off of the old pre-dividend price and others pricing off the new post-dividend price. Can you shed some insight on this? Thanks!
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Hey Mark, Great discussion. Though I've seen many discussions regarding covered calls vs. selling naked puts, I've yet to see it explained this way. This definitely helps shed insight on the psychological aspect of choosing one equivalent position over another. Well done-
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Love the Rant! Darn Market Makers get no respect...
Toggle Commented Nov 14, 2009 on My Turn to Rant at Options for Rookies
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Fantastic explanation Mark-
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Great Job Mark. The book was a good read and I'd recommend it to anyone. www.tylerstrading.com
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Great Post Mark. Thanks for sharing- www.tylerstrading.com
Toggle Commented Aug 12, 2009 on My Story and Risk Management at Options for Rookies
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Mark, I did miss that subtlety. Thanks for the clarification. Tyler-
Toggle Commented Jun 26, 2009 on Iron Condors vs. Condors at Options for Rookies
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Another difference between the IC and the Condor when using American Style Options, is the IC won't run the risk of early assignment because all short options are out-of-the-money. Because call or put condors involve entering in-the-money debit spreads, there is the risk of early assignment on the short in-the-money option (although the risk isn't too high unless the short option is trading near parity). Tyler-
Toggle Commented Jun 26, 2009 on Iron Condors vs. Condors at Options for Rookies
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Mark, Just finished your Options for Rookies book and wanted to let you know I thoroughly enjoyed it. I did have one clarification question in regards to how dividends affect an options price. On p. 92 you use the example of a stock trading @ $22, getting ready to pay a $.40 dividend. The long Oct 20 call was trading at or near parity ($2.00). If the next day the stock drops to $21.60 (as a result of the dividend), you mentioned the call will drop in price as well. I had thought that dividends were already an input into option pricing models, which means the $.40 dividend should already be priced in the call so that it doesn't automatically drop after the dividend. What am I missing? Thanks!
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Mark, Thanks for the reply. The other thing that is stumping me is assuming a portfolio is neutral on all the greeks, how would it make any money? I understand that by neutralizing the greeks, we're essentially neutralizing our risk. But wouldn't the flip side to that be that we can't make any money either? Ty
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Mark, Great Stuff! Thanks for all the informative posts. Just had one question for clarification on the neutral trading. You mentioned the trading firm is always neutral (delta, gamma, vega, and theta neutral). In you're response to Bob's question, you mentioned they make money based of premium (time) decay. Would this imply that there positions/portfolio is positive theta, not neutral? Thanks! Ty
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