This is a spread strategy that involves selling options and buying a greater number of out-of-the-money options.
Backspreads are often in a ratio of 1 to-2 or 2-to-3 and most traders use them because they work well when there is an increase in market volatility especially when they think the market is about to move higher
See also Butterfly Spread, Box Spread, Bear Call Spread
This is when you put on a short option position and hedge it with another option position or with long shares. This is essentially the opposite of a naked write.
If you are new to the Thinkorswim platform, it can be a little overwhelming with all the bells and whistles and tabs. One of the things that can be a little tricky at the outset is figuring out how to buy to open and sell to close ( enter & exit) Options trades. But first…
A Calendar spread is when you sell an option and buy another one with a more distant expiration date. This can be created with either puts or calls. For example, let’s say you wanted to play Netflix with calendar spread because you figure that the stock has dropped too far too quickly and will bounce…
What is an Option Sweep? An option sweep is basically when a big trader breaks up a large order into small individual trades. This is usually done in order to get filled fast or to conceal a large order. The common thinking is that a sweep usually means a big trader knows something and is…
When an option seller or writer receives an exercise notice, assignment has occurred. When assigned, writers must deliver the goods (shares or cash). For example, let’s say you sold 1 AAPL 145.00 CALL and the buyer decides to exercise the contract at expiration because AAPL is now trading at 146, you would need to deliver…
If you sell a certain type of option and you already have or get the thing you’re supposed to sell through that option, you’re called a covered call writer. EXAMPLE: An individual owns 100 shares of XYZ common stock. If she writes one physical delivery XYZ call option—giving the call holder the right to purchase…
