Market Neutral Option Spreads - Part I
By: Chuck Hughes
The Optioneering Team recently participated in the MetaStock Traders Summit. During the Summit the Optioneering Team explored Market Neutral Spread trades that can guarantee a profit for your trade even if the underlying stock/ETF price declines substantially making this a great strategy for down markets.
The Team will look at an actual option trade for the BRIC ETF that will profit regardless of the price movement of the underlying ETF. The Market Neutral calculator below displays the profit potential for this spread trade assuming various prices changes in the BKF ETF at option expiration from a 30% increase to a 100% decline.
The analysis below reveals:
- If the BRIC ETF remains flat at option expiration a $813 profit and a 75.6% return will be realized (circled)
- A 10% increase in the ETF results in a $1,322 profit and a 122.9% return (circled)
- A 40% decline in the ETF results in a 62.5% return (circled)
- The minimum profit for this trade is 48.8% regardless of the price movement of BKF
Learn how to set up option spreads that can profit if the underlying stock/ETF increases in price, remains flat or declines in price.
Futures, stocks, bonds, currency and options trading involves high risks with the potential for substantial losses.
PLEASE READ. Past results are not necessarily indicative to future results. There is a substantial risk of loss trading stocks and options with or without this or any other advertised product, service or system. Also, hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Since the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
If you wish to stop receiving our emails or change your subscription options, please
Manage Your Subscription
TradeWins Publishing, 528 North Country Rd., St. James, NY 11780
If you'd like to unsubscribe and stop receiving these emails click here.