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Options Trading: An Options Christmas Poem

By  Dec 24, 2009

Topics: Finance & Investing

So you think options are all dry and boring? Here’s an options Christmas greeting to remind you of a few of the basics.

Twas third Friday Eve and all through the exchange,

Traders checked on time value and profitable range.

Those in the money were twinkling with glee

As they counted their gains (less applicable fee).

 

The cranky old pessimists, put buyers all,

Heaped derision on every debit long call.

And for those up the creek with nary a paddle,

Expiration was near for the short-sided straddle.

 

Many traders were left just scratching their head

For the theory looked good for the dub-naked spread,

But now those positions seemed not quite as funny

With one side or the other now deep in the money.

 

A cheerful lot they on the eve of the witch

When options and futures cause many a glitch

And while on the subject, forget not the dread

In Reg T and margin (for more, see “The Fed”).

 

Yet more of disclosures, important to note,

That even on Christmas your profits don’t float,

And those that you realize, remember the facts,

Are subject to federal and state income tax.

 

So many details to keep in relation

To timing of close to avoid expiration.

Advice at a premium that many will like:

Remember proximity of price to the strike.

 

So  the OCC caveat rang loud in my ear:

In this season be happy and be of good cheer,

But remember, my friends, I cannot tell a lie,

When trading in options, some risks do apply.

 

                            © Michael C. Thomsett