ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel
  • »
  • Personal Finance»
  • Investing in Stocks, Bonds, Real Estate, More

Something From Nothing - - An Options Trade

Updated on January 14, 2013

The Right Set Up

There are many components in Options trading that one needs to consider such as the strike price, days to expiration, delta (and/or other Greeks), underlying stock and so forth. But that's not all. Volatility as a lot to do with options pricing.

Right now, as I right this HUB volatility is very low, which means that it is a great time to buy options, especially if you can get them for free. In this HUB I will show you a great trading strategy for times when the volatility is low, which can be monitored by the VIX (Volatility Index). Here is a recent trade that I put on.

A Recent Trade

I am going to give you the parameters for a trade I recently made. I am not going to give the symbol as I don't want this to be misconstrued as a position one should take.

As stated above volatility has been very low therefore I am looking to buy an option. In this particular setup, I had been watching a stock that I felt was VERY overvalued. I really expect this to come crashing down at some point as it really isn't a good company and it's price is extremely high.

We had a very strong down and everything and it's brother seemed to be up, except this stock that I had been watching. It was also trading very close to it's all time high. When I saw that it couldn't break through on such a strong day I knew it was poised to drop. However, nothing is guaranteed.

Stocks can do only three things. They go up, they go down, or they are flat and trade in a sideways range. This particular stock looked like it would either be flat or go down and the likelihood of it going up was minimal.

When I constructed the trade this particular stock was trading in the $170 area. I first constructed what is called a Bear Call Spread. In other words, I was able to sell a $180 Call and simultaneously buy $185 Call. This was a way from this companies all time high and I felt that it would really struggle getting over this amount.

However, this is where my risk is. If the stock price rises above $180 I would start losing money on this position, but limiting my risk in theory to $500 (I'm not going into the actual calculations). For taking on this risk I received a premium because the 180 Call I sold had a higher value then the 185 Call I bought, thus giving me a net credit.

Because I felt that this stock would drop in price I wanted to profit from the fall therefore I bought an out of the money Put (same expiration month). I usually buy in the money or at the money options, but in this case I am wanting to profit from either an increase in volatility or the actual movement of the stock. Therefore, I found an option whose price could be paid for from the premium I collected from the Bear Call Spread I created. I was able to do this with a $155 Put.

In the construction of this spread, after commissions, I had a net credit of $15.00. As long as the price did not exceed $180 I would either profit greatly or net $15 at expiration. The only way to loose money is for the stock to rise above the $180.

Next I will tell you what happened.

What Happened

First off, before I tell you what happened, remember that this trade paid me a small amount to put it on while also covering all my commissions.

I was right on the weakness of this stock. Within just a few days (less than 10) I had over a 50% return on the long Put that I owned. Because of the nature of how this stock trades I felt that it would try to bounce again and so I took my profits on the long Put leaving me with only the Bear Call Spread (I still didn't think it would increase past $180).

I ended up getting out of my long Put two days early, but I was happy with my returns. Then I just sat on my spread which netted me another 30% upon expiration.

The good news is that there are a bunch of deals out there at the time of this writing where being net long has a lot of potential. I presently, at this writing, have three such positions as I have described and as of now all three look like they will end up being profitable.

Happy Trading!


    0 of 8192 characters used
    Post Comment

    No comments yet.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: ""

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)