#short put

A bear put spread is a vertical spread consisting of being long the higher strike price put and short the lower strike price put, both expiring in the same month. The strike price of the short strike, represented by point A, is lower than the strike of the long put, point B, which means this strategy will always require the investor to pay for the trade. The short put primary purpose is to help pay for the long put upfront cost.

Benefit/Loss

A long butterfly spread with puts is an advanced options strategy that consists of three legs and four total options. The trade involves buying one put at strike price A, selling two puts and strike price B and then buying one put at strike price C. The setup is what would happen if an investor combines the end of a long put spread and the start of a short put spread, joining them at strike price B.

A trader who opens this trade is betting that the stock will pin or come close to pinning at strike price B. If the stock does pin at the short strikes then the investor would bank the profits from option C, while options B and A expire worthless.

This strategy has a low entry cost, which means reduced risk if things take a turn for the worse, but it can be challenging to lock down that pinning strike. The long butterfly spread with puts is good to use in low volatile markets, where the price has a high probability of pinning. However, it can also be a good choice in unpredictable markets due to its limited loss, but traders should keep a close eye on the trade and close it out once the stock moves to the short strikes.

Profit/Loss

The maximum profit is calculated by taking the difference between the higher strike price and the middle strike price, then subtracting the cost of the trade. For example, if the distance between point C and B was $5 and the trade cost $0.70, then the max profit would be $4.30. The maximum loss would the cost of the trade, so with the same example, the maximum loss would be $0.70.

Breakeven

There are two breakeven points. The upper breakeven point would be calculated by taking the highest strike price (point C) and subtracting the cost of the trade. So, if point C was a 110-strike price option, and the trade cost $0.70, the lower breakeven would be $109.30.

Another trend reversal chart is the inverse head and shoulders, also known as a head and shoulders bottom stock chart pattern. This technical analysis indicator is similar to the standard head and shoulders pattern, but inverted.

The inverted head and shoulders pattern indicates a movement towards a bullish trend and an excellent indicator for traders who know how to spot the pattern, allowing them to deploy commit capital on a bullish trade. Very similar in look to that of a triple bottom stock,with the only exception being that the “head” dips lower than the other two points giving it the inverted head a shoulders formation.

The pattern can be recognized when the price of a stock falls to a trough and then rises, then falls below the recent trough forming the head, and then rises again. Finally, the price drops back but not as deep as the previous time. Once the last trough is made, the price action moves upward, toward the resistance level and breaks through.

Getting started on stock trading

Stock trading is buying and selling of shares in an exchange through a broker. Trades done with knowledge and discipline becomes business and the ones without it becomes gambling. Technical analysis helps to chart out a trade plan.

Ushering in F&O : Like share trading in the cash segment (buy & sell shares), derivative is another kind of trading instrument. They are special contracts whose value derives from an underlying security. Futures and Options (F&O) are two types of derivatives available for the trading in India stock markets.

Selling #Theta and #Positive Theta

I was recently asked to explain how we trade.  I will usually briefly go into Delta Neutral and Positive Theta trading.  Then I’m asked, “You sell theta, but it is positive?”  I tell them yes, then I explain:

When you sell an option, it affects the “Greeks” in your portfolio.  The option Greek “Theta” represents the melting of an options price based on the time left until expiration.  When you…