While stock market speculation is frowned upon by many main stream investors and journalists, options strategies that seek to exploit market volatility or complacency can reward investors handsomely under the right conditions. There is a fine line between speculation and hedging though, right? If oil prices drop, that airline loses all the money it spent on those forward futures protecting against oil spikes.

Bullish and Bearish Option Trading Strategies | Ally

Does it really matter? If it were that easy to make 10 times your money in a month, efficient market arbitrage would ensure returns would drop and retail investors would never gain an edge over the pros.

But, once in a while, retail investors have a good call or want to only dabble with 50 bucks instead of to speculate on a particular market move. That being said, investors are going to speculate.

They often buy out of the money calls on the cheap looking for a big pop. Those calls may very well expire worthless. It is in the public domain that in early January, the FDA will be ruling on a much anticipated monoclonal antibody that has blockbuster potential.

While the safety data is so-so, the efficacy is off the charts.

However, with a ruling on the submission expected in January, you expect that shares could rally substantially — in early January, before options expiration on the third Friday of the month. Investor buys and sells the same number of options contracts simultaneously and limits upside, but decreases cash outlay:.

Investor buys 1 Call near the money and sells 2 Calls further out to offset the price of the 1 they bought.

Very low initial cash outlay BUT — risky, in that there is unlimited loss if shares run uncontrollably since investor sold more calls 2 than they hold long 1. Investor Sells calls at a particular strike for a close month while buying calls at a later month for slightly more due to time value and hopes that the front month option expires worthless while adequate value still remains on the outer month long option.

This could play out a few ways. These are just a couple examples based on a hypothetical situation.

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You could actually take on ratio spreads that are net even by assuming even more risk, or you could take on debit spreads with a larger cash outflow but with higher ROI potential. So, what are your thoughts?

Was it worthwhile discussing these strategies? Have you tried any of them?

Speculative Strategies with Treasury Options - CME Group

These are great articles that really help explain somewhat complex trading strategies in a clear way. Thanks for putting the time into these! I have been looking at many sites and found yours extremely useful. There is clearly lots to learn on this subject.

Can anyone recommend other good places to search for this information? You can use these HTML tags and attributes: Notify me of followup comments via e-mail.

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