Options 201: Beyond Obi-Wan-Kenobe Message Board

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Strategies & Market Trends : Options 201: Beyond Obi-Wan-Kenobe

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To: Ira Player who wrote (1000)	6/12/2004 8:23:09 AM
From: Step1	Read Replies (2) of 1064

Ira, if you dont mind me asking a quick question, I would like your opinion on this set up for a trade. I have started diagonal option trades and then happened on your equation for such . I wonder whether this is what you have in mind: >>> Say i buy the NYSE:GFI ITM Jan 2005 10 strike at 1.80 and sell the OTM Oct 2004 12.5 at .45 premium difference is 1.35 while the strike difference is 2.50 . Would that satisfy your equation? (i know though there is not much time diff between the two options, the closer months` premiums are paltry...) >>>>>> Thanks in advance step1 You wrote on May 4,2004 I tend to like diagonal spreads when the conditions are right, always buying a longer duration and selling a shorter duration. I like to set up the following conditions: 1. Buy an “In The Money” (ITM) option with significant time left before expiration. This minimizes the extrinsic (time) cost of the option. 2. Sell an “At The Money” (ATM) option with as short a time period as possible satisfying condition 3. 3. The “Buy Premium” – the “Sell Premium” is less than the “Sell Strike” – the “Buy Strike”.

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