NEUTRAL Market Option Trading Strategies

#1
NEUTRAL Market Option Trading Strategies

Key Points to Remember:

Neutral Market Strategies work best only in flat, non-trending or sideways markets.
ALL options eventually lose ALL of their "time value."
ALL "Out-Of-The-Money" options expire worthless.
Markets only "trend" 1/3 of the time; they move sideways the other 2/3.

I have arranged the eight neutral option market strategies as follows:

Option Strategy
Description
Reason to use
When to use


Since the market moves sideways 2/3 of the time, we have many option trading strategies for flat or trendless markets:

Strangle
Sell out of the money Put & Call.
Maximum use of time value decay.
Trading range market with volatility peaking.

Arbitrage
Buy & sell similar options simultaneously.
Profit certain if done at credit.
Any time credit received.

Calendar
Sell near month, buy far month, same strike price.
Near month time value decays faster.
Small debit, trading range market.

Butterfly
Buy at the money Call (Put) & sell 2 out of the money Calls(Puts) & buy out of the money Call (Put).
Profit certain if done at credit.
Any time credit received.

Guts
Sell in the money Put & Call.
Receive large premium.
Options have time premium & market in trading range.

Box
Sell Calls & Puts same strike price.
Profit certain if done at credit.
Any time credit received.

Ratio Call
Buy Call & sell Calls of higher strike price.
Neutral, slightly bullish.
Large credit & difference between strike price of option bought & sold.

Conversion
Buy futures & buy at the money Put & sell out of the money Call.
Profit certain if done at credit.
Any time credit received.
 
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