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advanced spreads

Advanced Option spreads consist of 3 or 4 option legs. In most cases, advanced option spreads are a combination of two 2 leg spreads.

Butterfly Spreads

A Butterfly Spread is a complex option strategy that consists of 3 legs. The center leg of a Butterfly Call Spread consists of two short near the money (NTM) calls, and the outer legs are 1 long in the money (ITM) call, and 1 long out of the money (OTM) call. The position is neutral, that is, the maximum profit is attained when the stock is at or near the center strike price. Losses are incurred when the underlying stock undergoes a significant price change.

The objective of the Butterfly trader is to profit by collecting premium from the short leg, while protecting against losses by buying the outer legs. The premium collected from the inner leg exceeds the premium paid for the outer legs, resulting in a net credit. The credit received at the time of the trade is the maximum profit of the trade. The maximum loss is net credit minus the greater of a) the OTM strike minus NTM and b) the NTM strike minus ITM.

See Butterfly Spreads for more information.

Calendar Straddles

A Calendar Straddle consists of two straddles at the same strike but with different expirations. The near term straddle is short and has a higher theta than the long leg, so the positon profits from time decay if the underlying price remains stable. A typical use of Calendar Straddles is to enter short straddles with the objective of collecting a high premium, while hedging against large movements in the underlying stock with the purchase of the far term straddle. A Calendar Straddle is a neutral strategy that profits if the stock price remains stable.

Butterfly Diagonals

A Butterfly Diagonal is similar to a Butterfly spread, except the outer legs are longer term than the inner leg. The higher theta on the near term leg results in the premium decreasing more rapidly on the short leg. Hence, this strategy profits when the stock price is stable.

Double Diagonals

Double Diagonals can be viewed as a short inside strangle and a long outside strangle. The short strangle has a greater time premium because it is both nearer to the money and closer to expiration than the outside strangle. Therefore, the position will profit if the underlying price remains relatively stable prior to the expiration of the near term contracts.

Iron Condors

Iron Condors, like Double Diagonals, have a short inside strangle and a long outside strangle. Unlike Double Diagonals, all contracts expire together in an Iron Condor. This trade will profit if the underlying price remains relatively stable prior to the expiration date. The cost of insuring against a large price swing is cheaper than with a Double Diagonal, however, Double Diagonal traders have the advantage of being able to enter into a new short near term strangle if the underlying hasn't moved too far when the near term strangle expires.

Report Options

The Advanced Option Screener reports may offer the following selection criteria:

  • Expiration - the expiration date for vertical spreads
  • Minimum Price - the minimum price of the underlying stock
  • Max Months - for calendar spreads, the maximum number of months between spread pairs
  • Sort Order
    • NetIVol - the net difference between the volatility of the two legs weighted by the maximum profit.
    • Net Debit/Credit - the maximum profit, without regard to the volatility.
    • P/L Ratio - the maximum profit divided by the maximum loss.
  • Minimum Option Volume - the minimum option volume for each leg in the spread
  • Moneyness - see Moneyness
  • Number of Results - the number of results to display

Each report displays one or more of the following fields:

  • Stock - the underlying stock symbol
  • Stock Price - the underlying stock price
  • Fields for each contract:
    • Option Symbol
    • Expiration Date
    • Strike
    • Option Price
    • Put vs. Call
    • Contract Price
    • Spread Price
  • Credit or Debit - the net cost or net proceeds from the trade of the spread, i.e. the price of the short leg minus the price of the long leg
  • Spread - the difference between the strike prices
  • Max Profit - the maximum profit that can be realized from the spread
  • Max Loss - the maximum loss that can be realized from the spread
  • Profit/Loss - the maximum profit divided by the maximum loss
  • Net IVol - Net implied volatility; the difference in implied volatility of the two option contracts

Excluded Contracts

Contracts that have any one of the following conditions are excluded:

  • no bid
  • no volume
  • no open interest
  • no contracts in the cycle. See Option Cycles.
  • have expired or will expire today.

Data is updated nightly.

Data Provided by HistoricalOptionData.com
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