DERIVATIVES

Neutral Options Strategies

by David L. Caplan
Here's an overview of using options as a technique to take advantage of unique situations in the futures markets.

"Whereas a casino accepts bets from all players, in the options market we don't have to play the game unless we feel that the odds are strongly in our favor - that is, high option premium, short time to expiration and so forth."

FIGURE 1: MARCH T-BOND FUTURES.
During December, the market entered into a trading range.
 
FIGURE 2: COFFEE. In May 1996, there was favorable ratio spread in coffee options, purchasing 160 calls and selling 180 calls that were trading at volatility levels of up to 40% higher. This trade computed out a probability of profit of more than 95% because of the significant premium disparity.
Excerpted from an article originally published in the September 1996 issue of Technical Analysis of STOCKS & COMMODITIES magazine. 
© Copyright 1996, Technical Analysis, Inc. All rights reserved.
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