#tickertank

If you haven't already heard, tickertank's founder, Nick Fenton, will be live on thinkorswim's Swim Lessons tomorrow afternoon at 3:30 central time. Nick will be talking about getting over the fear of selling Strangles during earnings season, and this is definitely a lesson you want to catch if you've ever traded during the "trader's Christmas". 

Strangles involve the purchase (or sale, if you're short) of a call and a put, both out of the money, at different strike prices but in the same expiration month. If you buy a strangle, you're betting that the stock's price will move strongly in one direction before expiration. If you sell the strangle, you're collecting a credit and betting the stock will stay within a specific range until expiration. 

Nick will explain how to determine when it makes sense to sell a Strangle into an earnings event tomorrow - so tune in! 

If you're a regular reader or member of TickerTank.com, you've definitely heard of spreads as an option strategy. You may have even placed some spread trades yourself. But you may not know that a "spread" isn't just an advanced options trade - it's an entire class of trading in which you bet on the difference between the price of two objects. 

For instance, futures traders often trade "horizontal spreads" where they sell a near-term futures contract and purchase a longer term one (or the opposite). Why would they do this? Well, it turns out that if you factor in interest rates and possible dividends (on index futures), it's possible that your profit could be automatic. In other words, arbitrage could exist. 

More realistically, spread trading is a way to make a guess as to whether two products, who presumably have some relationship to each other, will have their prices grow closer or grow farther apart in some time frame. For example, a pairs trade involves the selling and buying of closely-related stocks, sometimes in a X:1 ratio, so that the proceeds of the sale mostly offset the cost of the purchase. At this point, if the price relationship responds in the way predicted by the trader, there's a profit to be made. 

If you're a TickerTank Premier Member, you receive our trade ideas. Sometimes we post complex options trades like spreads and iron condors (see today's trade!), and sometimes we keep things more simple and put out mixed stock and option trades, like covered calls.  

The covered call strategy is the most widely used in the options market. It involves buying stock and selling a call option against that stock, in order to reduce the total debit paid when the stock is purchased. 

Why do we want you to know about them? Because selling a covered call against stock you already own creates a credit in your account, reduces the cost basis of your stock, and increases the probability that your stock trade will be a successful one in the long term.