When To Use Combination Trades

There are really only four basic things that can be done in the options world: A trader can buy or sell a call or a put. All of the complex option positions out there with the funny names are simply combinations of the above.

One thing to keep in mind is that end strategies can almost always be made with different combinations.

I was reminded of this fact on several occasions in recent days. The first came from a calendar spread in EMC recently, when a trader bought 5,600 January 2014 30 puts and sold the January 2013 30 puts for a net of $2.09. I wrote up the trade and was later hit with emails asking about my “mistake.”

As it turns out, the trade was broken and replaced with a call calendar in which the trader bought 5,600 January 2014 30 calls and sold the 2013 calls for a bet debit of $2.09. So there was some confusion on the part of anyone who read what I wrote about puts and saw the volume in the calls.

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— Option Monster

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