Lessons for the Options Beginner

The following short video was prepared to explain a simple options concept:

Why option owners elect NOT to exercise an option prior to expiration

This is the type of ‘extra’; that occasionally will be available at the new (launching April 1, 2011) Options for Rookies Premium website.

Exercising a Call Option: Don’t Do It

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7 Responses to Lessons for the Options Beginner

  1. Lies 03/01/2011 at 7:29 AM #

    Hallo,

    I’ve been browsing thought your website and i’ve seen a lot of articles about the Iron conder. Do you clarify the possible problems that can occur when trading this strategy because you have a preference fot this strategy or just because there are many questions from readers?

    I read two of yours books, but you did not discuss the IC fundamentally. May i ask you why not if you love and practice this strategy the most?

    Thanks

    • Mark D Wolfinger 03/01/2011 at 8:36 AM #

      Hello Lies,

      You raise a very good question and although I understand why I chose this strategy as my primary blogging topic, I’ve never previously discussed the rationale.

      I write about the iron condors for a number of reasons.

      For premium sellers, many rookies start by writing covered calls. Then they move to selling cash-secured naked puts when they recognize that the strategies are equivalent. Next they get to recognize the risk of selling the naked pus and move to selling put credit spreads.

      Then there is the group of traders who buy debit spreads. Once they understand that this is equivalent to selling credit spreads (calls vs. puts and using the same strike prices and expiration date), they often switch to selling credit spreads.

      From my perspective many roads lead to trading credit spreads. the iron condor is merely an extension by selling both call and put spreads simultaneously. In other words, for me, the entire iron condor, or just half of it represents the most often used trading strategy – for premium sellers who do not want the higher risk and greater reward possibilities of selling naked options.

      Once I began writing about iron condors, it’s natural for readers to raise questions on them. Thus, one thing lead to another.

      Another reason for continuing to discuss the IC is that is lends itself to alternative risk management methodologies – other than prudently exiting the trade. And the skills developed with iron condors translate to credit spreads – and even CC and put selling. Thus, it’s a good strategy for a general discussion.

      I seldom mention the butterfly spread. But, it’s just an iron condor with zero separation between the call and put strike prices.

      Bottom line: It’s related to so many other strategies that it represents a good central topic for discussion.

      Lies: I don’t understand the ‘fundamentally’ question.

      Regards

  2. Lies 03/01/2011 at 9:16 AM #

    Thanks for this clarification.

    My last question refers to one of yours books (create your own hedge funds) where you didn’t discuss the IC. But maybe you describe this strategy in another book. I haven’t read all your books. 🙂

    • Mark D Wolfinger 03/01/2011 at 9:42 AM #

      Lies,
      That book had a different purpose and I no longer recommend it – except as a book with a bunch of examples First it’s expensive. Next, the Rookie’s Guide cover’s much more material.

      Regards

  3. Mike S. 03/01/2011 at 11:07 PM #

    Great video! I think that some rookies do get confused about expiration, but your video really clears it up. Well done!

  4. Mike S. 03/01/2011 at 11:09 PM #

    Correction: I mean, rookies get confused about EXERCISE, lol. Sorry about that.

  5. amir 03/01/2011 at 11:13 PM #

    Great video. Keep up with the great work.