Frightening Options Trading Strategies

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The Zombie
Sometimes nearing expiration doesn't necessarily mean an option is a goner. Traders can roll options out, up, or down to keep a position alive. In fact, it's possible to roll an option up and out, giving the position a second life. Be sure you're not doing it just to delay an inevitable loss, however.

The Slow Decay
For options buyers, the quiet march toward death gradually decreases a contract's time value. Known as time decay, or theta, it is a natural progression for options contracts as they near expiration. With no existential relief from the passage of time, it's important to remember that out-of-the-money options can expire worthless.

The Sharp Talons
The iron condor is one of the most popular options trading strategies. With two vertical spreads making up the wings, this large scavenger waits for carrion to enter its domain. This strategy has limited profit potential and risk, with its four strike prices helping define the trade's maximum gain and loss. Iron condors generally perform best when the underlying stock stays within a defined range.

The Witch's Potion
It's possible for a trader to combine several ingredients for powerful results, especially when they have a specific target (or spell) in mind. A long call spread and a long put spread both involve simultaneously buying and selling options of the same type at different strike prices. Some have been known to add a fig leaf to the cauldron, collecting premiums to help offset potential losses.

From Schaeffer's Laura McCandless