16 lines
1.1 KiB
Plaintext
16 lines
1.1 KiB
Plaintext
0.364 delta, positive gamma, and negative theta. The spread as a whole is a
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decaying asset. It needs the underlying to rally to combat time decay.
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A bullish trader may also sell this spread if XOM is between the two
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strikes. In this case, with XOM at, say, $77, the delta is +0.388, and all
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other greeks are negligible. At this particular price point in the underlying,
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the trader has almost pure leveraged delta exposure. But this trade would be
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positioned for only a small move, not much above $80. A speculator
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wanting to trade direction for a small move while eliminating theta and
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vega risks achieves her objectives very well with a vertical spread.
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A bullish-to-neutral trader would be inclined to sell this spread if
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ExxonMobil were around $80 or higher. Day by day, the 1.30 premium
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would start to come in. With 40 days until expiration, theta would be small,
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only 0.004. But if the stock remained at $80, this ATM put would begin
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decaying faster and faster. The objective of trading this spread for a neutral
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trader is selling future realized volatility—selling gamma to earn theta. A
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trader can also trade a vertical spread to profit from IV. |